final drivers for innovation in china (2)6 · 2016-09-26 · drivers for innovation in china...

ICDK Analysis No. 6, September 2016

Drivers for Innovation in China

R&D and consumer driven innovation and trends

Danish Agency for Science, Technology and Innovation 2

Published by Danish Agency for Science, Technology and Innovation Bredgade 40

1260 København Copenhagen K Telephone: 3544 6200

E-mail: [email protected] www.ufm.dk

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Publication can be downloaded at idck.um.dk and ufm.dk/publikationer.

ISBN: ISBN (electronic publication): 978-87-93468-14-6


Contents

Dansk resumé .......................................................................................... 5

Executive Summary .................................................................................. 7

Introduction ....................................................................................... 9 1.

1.1 Consumer Trends ....................................................................... 9

1.2 Political Trends .......................................................................... 11

1.3 Social Trends ............................................................................ 12

1.4 Economic Trends ....................................................................... 12

1.5 Technology Trends ..................................................................... 13

The Mobile & Smart Living of the Chinese Consumer ......................... 17 2.

2.1 Consumer Trends ...................................................................... 17

2.2 Opportunities ............................................................................ 18

2.3 Socioeconomic Developments, Trends & Drivers ............................. 19

2.4 Technology Developments, Trends & Drivers.................................. 19

2.5 Key Companies ......................................................................... 21

2.6 Industry & Academic Partnerships ................................................ 25

2.7 Challenges ................................................................................ 26

Food Quality, Safety & Healthy Foods ............................................... 27 3.

3.1 Consumer Trends ...................................................................... 27

3.2 Socioeconomic Developments, Trends & Drivers ............................. 28

3.3 Technology Developments, Trends & Drivers.................................. 29

3.4 Key Companies ......................................................................... 31

3.5 Acquisition of Foreign R&D .......................................................... 32

3.6 Industry and Academic Partnerships ............................................. 33

3.7 Challenges ................................................................................ 34

Patient Centric & Value-adding Health Care Solutions ....................... 35 4.

4.1 Consumer Trends ...................................................................... 35

4.2 Socioeconomic and Technology Drivers ......................................... 36

4.3 Government Investment ............................................................. 37

4.4 Key Companies ......................................................................... 38


4.6 Acquisitions and Foreign R&D ...................................................... 41


4.7 Challenges ................................................................................ 41

China’s Response to Pollution & Climate Change ............................... 43 5.

5.1 Consumer Trends ...................................................................... 43


5.3 Government Investment in Environmental Protection ...................... 45

5.4 Companies and Green Initiatives .................................................. 46


5.6 Challenges ................................................................................ 49

Striving for Knowledge Excellence .................................................... 50 6.

6.1 Consumer Trends ...................................................................... 50


6.3 Investment in Education Innovations ............................................ 51

6.4 Companies and Initiatives ........................................................... 53


6.6 Acquisitions and Foreign R&D ...................................................... 55

6.7 Challenges ................................................................................ 56

About ICDK Analysis .............................................................................. 57


Dansk resumé

Den kinesiske regering har udnævnt innovation til at være den primære drivkraft for fremtidig økonomisk vækst. Dette betyder blandt andet stigende investeringer i

F&U samt et fokus på forbrugerdreven innovation. Målet er, at Kina skal være et innovativt samfund i 2020 og verdensførende inden for videnskab og teknologi i

2050. Kina er i dag verdens næststørste investor i F&U, og det kinesiske innovationssy-

stem er en fast del af det globale F&U landskab. Den kinesiske model for innovati-on er karakteriseret ved at være meget markedsorienteret og skiller sig ud fra den

vestlige innovationsmodel ved at have et større fokus på, at produkter, services og teknologier når hurtigt fra udvikling til introduktion på markedet. Fokus for den ki-

nesiske innovation er i høj grad at kunne levere og tilfredsstille markedets og for-brugerens behov.

Innovation Center Denmark i Shanghai har i samarbejde med det Kina-baserede

konsulentbureau China Skinny udarbejdet en analyse, der beskriver relationen mellem forbruger og innovation i Kina. De kinesiske forbrugere anses for at være

verdens største gruppe mainstream forbrugere og gruppen vokser fortsat stødt. Særligt internetbaseret forbrug vokser eksplosivt. Ved udgangen af 2015 var der mere end 688 mio. online forbrugere i Kina. Relationen mellem de kinesiske for-

brugere og innovation har derfor ikke kun betydning for udviklingen af innovation i Kina, men også for udviklingen af innovation globalt.

Første del af analysen beskriver den tætte forbindelse mellem trends i forbruger-

nes efterspørgselsmønster og udviklingen af innovation i Kina. Historisk set har den kinesiske økonomi været drevet af eksport, investering og produktion. I dag er

fokus for drivkraften bag den økonomiske udvikling skiftet, og innovation, design, forbrug samt services spiller en langt større rolle. Det nye fokus for den økonomi-

ske udvikling betyder endvidere, at hovedaktørerne bag udviklingen i vid udstræk-ning udgøres af forbrugerne, herunder særligt den hastigt stigende middelklase, der efterspørger nye og bedre varer og teknologier samt regeringen og virksomhe-

der, der investerer i F&U og innovation.

De efterfølgende kapitler i analysen giver en indsigt i F&U, forbrugertrends, drive-re, nøglespillere og samarbejde inden for følgende fem udvalgte områder af særlig

interesse for Danmark:

• Mobile og smarte IKT-løsninger • Fødevarekvalitet, -sikkerhed og sunde fødevarer

• Patientfokuserede og værdiskabende sundhedsløsninger • Løsningsmuligheder på forurening og klimaforandringer • Udvikling af uddannelsessektoren


Inden for hvert område er der beskrevet forbrugertendenser, socioøkonomiske og teknologiske udviklinger samt væsentlige hovedaktører inden for innovation, her-

under virksomheder, myndigheder og forskningsinstitutioner, offentlig-private samarbejde og partnerskaber samt de udfordringer og muligheder der findes for

eksempelvis danske SMV’er, der ønsker at komme ind på det kinesiske marked. Hovedkonklusionerne inden for hvert område er uddybet nedenfor.

Kina er i dag verdensførende indenfor forskning i smart home teknologier. Dette skyldes blandt andet,at kinesiske entreprenører har haft succes med at blive en

integreret del af det etablerede produktionsapparat samt at produktionsvirksomhe-derne i stigende grad sælger direkte til kunderne. Hermed har den stigende efter-

spørgsel fra forbrugerne drevet fokus og investeringer i industrien.

Kinas forskning indenfor fødevarer er drevet af dels nødvendigheden for at refor-mere en fragmenteret og ineffektiv supply chain, dels er den drevet af uddannede

og bevidste forbrugere, der kræver sundere og flere fødevarer samt en langt større fødevaresikkerhed. F&U og innovation er her, sammen med ny lovgivning og stan-

darder på området samt investeringer i fødevareproduktion, nøglen til at gennem-føre disse reformer og derved imødekomme forbrugernes krav.

Kinesiske produktionsvirksomheder på sundhedsområdet har bevæget sig op i værdikæden grundet faktorer som stigninger i lønningerne, en udviklet infrastruk-

tur, globale ambitioner og et øget fokus på investeringer i F&U. En aldrende be-folkning, forbrugernes øgede fokus på sundhed, livsstilssygdomme, sundhedsska-

deligt miljø, skandaler og et ineffektivt sundhedssystem, har ligeledes været afgø-rende for udviklingen af innovative løsninger og investeringer i sundhedsindustrien

og teknologiske virksomheder.

En af Kinas store udfordringer er miljøet og forbrugernes store bekymringer for de-res sundhed grundet den massive forurening. Forbrugerne efterspørger i stigende grad teknologier, der kan beskytte dem for de negative effekter af forureningen.

Forskning og innovation indenfor miljø er en topprioritet i den kinesiske regerings seneste 5-års plan fra foråret 2016, og de kinesiske virksomheder søger også nye

løsninger både i Kina og i Vesten, baseret på ny banebrydende forskning og tekno-logier, der kan løse de miljømæssige udfordringer Kina står over for.

Den kinesiske regerings vision og ambition om at blive et af de mest innovative

lande i verden i 2050, kræver en innovativ, entreprenant og kreativ arbejdsstyrke, der kan drive denne udvikling. Dette er en udfordring for Kina, hvor opbygningen

af uddannelser og undervisningsmetoder ikke fordrer kreativitet. Flere initiativer og samarbejder mellem politiske og akademiske institutioner og senest virksomheder viser spæde tegn på forandringer af det kinesiske uddannelses- og undervisnings-

system, der kan indikere, at et mere innovativt system er ved at blive etableret.


Executive Summary

The Chinese government recognises innovation as a primary driving force for eco-nomic development. In 2006 the government declared its intention to transform

China into “an innovative society” by 2020 and a world leader in science and tech-nology by 2050. The strong focus on innovation is reflected in the government’s

continuously increasing R&D spending and supporting policy. China is now the world’s second largest investor in R&D and the Chinese system of

innovation is now firmly on the world R&D map. Yet the Chinese model for innova-tion and Chinese organisations’ breakthroughs are different from the West; with

greater willingness in China to go directly from development to manufacturing and shipping products. Innovation in China is primarily driven by the market and inno-

vation from Chinese companies is characterised as “need seeker” with a strategy to identify the needs and desires of end users by engaging them directly, and a goal

to be the first to market with breakthrough products serving previously unmet needs.

This ICDK analysis is made for Innovation Centre Denmark in Shanghai by the Chi-

na based consultancy company China Skinny. The first part of the report explains the tight link between consumer demand and

innovation development in China. Historically, China’s growth has been driven by export, investment and manufacturing, but as China moves up the development

ladder, the growth is shifting towards design, consumption and services. Innova-tion based on consumer needs plays a key role in China’s transition and develop-

ment.

The remaining chapters look into R&D, consumer trends, drivers, key players and collaboration for the five selected areas: The mobile and smart living of the Chi-

nese consumer; Food quality, safety & healthy foods; Patient centric and value-adding health care solutions; China’s response to pollution and climate change and Striving for knowledge excellence. The key findings for each area are summarized

below.

China is world leading in R&D in smart home technology as entrepreneurs have succeeded in tapping into the established manufacturing and engineering infra-

structure combined with the transition of manufacturers from OEM1 to selling direct to consumers. Growing consumer demand and support have driven focus and in-

vestment to the industry.

China’s R&D focus on food is partly driven by necessity due to a fragmented and inefficient supply chain and partly by educated and aware consumers, demanding 1 OEM (Original Equipment Manufacturer) refers to a manufacturer of non-branded products which are then branded by another company.


healthier, safer and trackable food sources and much more of it. R&D and innova-tion are key requirements to achieve this goal along with tighter regulations and

investment in food production and standards.

Chinese health care manufacturers are being pushed up the value curve by higher wages, a developed infrastructure, global aspirations and increased focus and in-vestment in R&D. An aging population and consumers with ever-growing health

concerns due to greater awareness, ‘white collar diseases’, a poor environment, scandals and an inefficient health care system, are also pushing for change requir-

ing innovative solutions and investment from the health care industry and tech companies.

China’s environment is severely challenged and of great concern to consumers,

who increasingly demand technologies that can protect them from the negative ef-fects of pollution. Environmental R&D and innovation is a top priority in the gov-

ernment’s latest Five-Year plan and companies are also chipping in and funding projects that are cutting-edge of research, technology and conservation with the

aim to improve China’s environment. With the vison to become one of the most innovation countries globally, China

needs creative minds, but the education is responding slowly. Multiple initiatives and cooperations between political and academic institutions as well as companies

suggest that the change to a more innovative system is underway. Incubation cen-tres and an increasing involvement of the private sector are driving creative educa-

tion, advanced research and innovations. Currencies in this project refers to Chinese yuan. On June 6, 2016 the conversion rate is: 1 Chinese yuan (¥) = 0.996623305 Danish kroner


Introduction 1.

Historically, China’s growth has been driven by export, investment in infrastructure, factories and housing as well as manufacturing, but as the market evolves and the economy slows, innovation is crucial for continued economic growth. Consumption is another key factor for future growth – in the first quarter of Q1 2016 China’s GDP grew 6.7% and consumption contributed with 84.7 %2. Innova-tion is therefore tightly linked to consumers. Over the past three decades, Chinese companies have learned to adapt products from around the world to the needs of a rapidly urbanizing nation and have become very agile—moving goods into production quickly, then tweaking designs afterward to better address consumer needs.

1.1 Consumer Trends

1.1.1 The importance of lower tier cities’ consumers

Chinese consumers are considered the world’s largest group of mainstream con-sumers and the market continues to grow. In 2012 there were 256 million urban

households, of which 17% had the disposable income to make discretionary pur-chases, contributing to the lion’s share of consumption growth. Just ten years later

and there will be 357 million urban households and 63% in the income bracket to buy more than just daily necessities3. The future growth of the middle class and

wealth of China will come from lower-tiered cities due to increasing incomes and consumption. There are 76 prefecture level cities in China with more people than

all of Denmark4, and the lower-tier cities are contributing the lion's share of China's current growth. By 2020, 75% of China's affluent consumers will live in Tier 2 or smaller cities5.

2 National Bureau of Statistics of China, 2016 3 McKinsey “Mapping China’s Middle Class”, 2013 4 National Bureau of Statistics of China, 2016 5 Boston Consulting Group “The Age of the Affluent: The Dynamics of China’s Next Con-sumption Engine”, 2012


Source: The Economist, 2016

1.1.2 Digital China

At the end of 2015, 688 million consumers were online in China. The Internet is even more part of Chinese consumers’ lives than in Western countries. Chinese

spend 26 hours a week online, and they access it everywhere, with 89% using mo-bile devices to go online6. Chinese consumers use apps for everything, and buy

most things online. Online shopping is growing more than three times faster than physical stores as it offers convenience, larger ranges, competitive prices and more

responsive service. China’s 358 million mobile shoppers account for around 70% of online shopping7, with mobile commerce growing three times faster than desktop

shopping.

1.1.3 China’s Important Youth Segment – Milennials

China’s youth (aged 15-29), known as Millennials, are the country’s main hope to

lead the consumption revolution, contributing most to China’s retail sales growth in 2015. Millennials have only known a prosperous China and they are relatively free

spenders, without the frugal predispositions of their older peers. The youth are better educated - 68 million Chinese born in the 90s have a university degree, al-

most 10 times more than those born in the 70s8. Two-thirds are estimated to be in the ‘high income bracket’9. The average age of China’s 3.6 million USD millionaires

is 38 years10, versus over 50 globally. Chinese Millennials also are much more open to foreign products and influences, with 59% under 30 viewing America positively,

versus just 29% of those over 50 according to Pew Research. They earn more, spend more and travel more than older generations and are the key segment driv-

ing consumption.

1.1.4 Chinese Brands Are Becoming More Competitive

In 2011 Chinese consumers had a significant preference for foreign brands and

looked down on domestic brands – just 31% were willing to support Chinese com-panies by buying Chinese goods11. However, Chinese consumer preference for lo-

6 China Internet Network Information Center (CNNIC) “Statistical Report on Internet Development in China”, 2016 7 iResearch “China’s Internet Industry Summary Report”, 2015 8 Goldman Sachs “Chinese Millennials”, 2015 9 High income refers to a monthly income of ¥10,000 or above 10 Hurun “The Chinese Millionaire Wealth Report”,2014 11McKinsey “The Modernisation of the Chinese Consumer”, 2016


cal brands is improving due to increased investment in quality control, design and branding by domestic brands. Some Chinese companies even have notable R&D

budgets. This coupled with a greater sophistication and self-confidence of Chinese consumers, who are now looking beyond the brand and evaluating the value, mak-

ing Chinese products more competitive. According to a recent McKinsey study, 62% of Chinese consumers prefer Chinese brands over foreign. Most Chinese are proud of their Chinese roots and many support local brands if they measure up.

1.1.5 From Functional To Experience Based Consumption

With rising income levels and living standards, Chinese consumers’ spending pat-

terns are evolving and Chinese are allocating more of their income to lifestyle ser-vices and experiences. To Chinese consumers, entertainment beyond the house is

all about enjoying life: restaurants, cinema and travel are popular as spending on services grows. In 2013, the Chinese middle class spent 44% of all money on ser-

vices and according to McKinsey this is expected to grow to 50% by 2022, as young urbanites splurge via their phones on everything from massages to dining

out, hairstyling, and nail salons.

1.2 Political Trends

1.2.1 Urbanisation

One of the key drivers of China’s economic growth has been urbanisation and it has been growing at 2.85% a year12. Currently, around 56% of China’s 1.4 billion

people live in cities, leaving room for further growth13. The Chinese government acknowledges the importance of urbanisation for the growth of the economy as ur-

ban consumers earn over three times more than their rural equivalents, they are more educated, tech-savy14 and likely to contribute to innovation. A new urbanisa-

tion mandate is therefore being pushed, with a focus on transforming migrant workers into urban citizens and deepening reform of the household registration

system in order to give rural residents moving to the cities for work the same ben-efits as urban residents. China’s urbanisation rate is targeted to be 60% by 2020,

up from the current 56%.

1.2.2 Improving The Quality Of Education

As the government aims to make consumption a key pillar of growth, it also realiz-

es the importance of improving the quality of education to bridge the gap between the rural and urban population. Therefore, the education targets focus on subsidiz-

ing education for poor students, promoting fairness in education and standardizing the process for urban and rural schools. The Government also aims to raise the

quality of certain to universities and subjects to the standards of top ranking global universities. The Chinese government also encourages the private sector to invest

and provide diversified education services.

1.2.3 Supply Side Reforms

The Government initiated supply side reforms will be carried out from 2016-2018 and are expected to generate sustainable, quality growth through tax cuts, entre-

12 National Bureau of Statistics of China, 2015 13 Ibid. 14 The term tech-savy refers to people who are well-informed about or proficient in the use of modern technology.


preneurship and innovation. Companies will be encouraged to spend more on R&D and take steps to enhance product design and innovation. As a result, more varie-

ties of Chinese branded high-end consumer goods will be available to consumers. The reform also encourages major consumer goods producers to meet international

standards. The Government has specified nine types of consumer goods as the ini-tial focus, including domestic appliances, watches, bicycles, goods for daily con-sumption, food as well as products in the culture and sports sectors.

Chinese consumers’ spending overseas on high quality products and services has grown rapidly and it is hoped the supply side reforms will support Chinese compa-

nies to make products that can compete with imported goods.

1.3 Social Trends

1.3.1 Embracing Change

People in China have seen more change in 30 years than many Western countries

have seen in a lifetime. This has impacted the way change and innovation is per-ceived – Chinese consumers have developed a knack for expecting progress and

being optimistic about new technology. Over 500 new products are launched every day in the market. Rather than fighting the trend, consumers as well as companies

are embracing change. Chinese are enthusiastic about technology and are the leader in Asia when it comes to early technology adoption and online technology purchases – 59% indicate they buy a new tech device as soon, or shortly after, it is

available15.

The readiness for change is also reflected among traditional industries — businesses from large retail chains to mom-and-pop shops16 are accepting pay-

ments via Alipay and WeChat Pay17 and integrate other offline to online initiatives; many municipal transportation bureaus have integrated mobile payments into

subway gates, so that riders can wave their phones to get into the station; hospi-tals are taking doctor appointments on WeChat; TV networks are porting over con-

tent (sometimes handing over exclusive rights) to online video portals.

1.4 Economic Trends

1.4.1 Rising Disposable Income

Despite the slowing economy, the urban disposable income per capita is forecast to

grow from ¥56.280 today to more than ¥208.430 in 2030. Today only 11% of the population has reached the middle class18, but the middle class will continue to grow due to urbanisation and income growth. Of China’s 770.4 million working

population, less than 2% pay income tax19.

15 Consumer Technology Association (CTA) “Asia-Pacific Consumer Tech Ownership and Opportunity Study”, 2016 16 The term refers typically small, independent stores run by families 17 AliPay and WeChat Pay are China’s two most popular online payment platforms owned by Alibaba and Tencent respectively. They are a combination of Paypal and Ap-plePay 18 McKinsey defines the mass middle class in China as annual household incomes from ¥60.000-106.000 while the upper middle class has annual household incomes of ¥106.00-229.000. 19 Goldman Sachs “The Rise of China’s New Consumer Class”, 2016


1.5 Technology Trends

1.5.1 Innovation Focus

Innovation is recognised as a primary driving force for economic development and

the Chinese government is increasing its R&D spending (overall and as a percent-age of GDP). China is now the world’s second largest investor in R&D. Over time,

the investment in R&D has increased from 0.5% of GDP in 1995 to 2% in 2014, on par with the investments of the European Union. The target is expected to reach

2.5 % by 2020, thus catching up with the relative investment in R&D in the United States.

Source: National Bureau of Statistics of China

1.5.2 Internet Plus

The Chinese government’s Internet Plus strategy promotes cloud computing, online

banking and mobile internet and seeks to drive economic growth by integration of Internet technologies with manufacturing and business. By combining the technol-

ogy sector’s ability of gathering and processing huge amounts of data with more traditional areas of the economy, it will provide more transparency and tracking of

¥ Billion


domestic production and supply chains to instill a greater level of confidence in lo-cal products.

1.5.3 O2O

One of the current buzzwords in China is O2O (Online-to-Offline). The widespread

adoption of smartphones has enabled consumers to easily integrate their physical and online activities. Internet companies are innovating and investing to capitalise on this

trend. QR code scanning has allowed many opportunities including online payments and purchasing, social sharing and marketing, and to aide research and purchase

decisions. China's big Internet companies Baidu, Alibaba and Tencent are all work-ing with offline retailers to integrate their platforms into the physical shopping ex-

perience, bringing significant data tracking, insights and intelligence.

Integrating online elements into offline retail and services was estimated to gener-ate an additional ¥240 billion in 2014, growing 20% from a year earlier20.

In 2015, 71% of online Chinese consumers have used O2O services21.

1.5.4 Innovative Development

In its 2006 “Medium- to Long-Term Plan for the Development of Science and Tech-nology” (MLP), the Chinese government declared its intention to transform China into “an innovative society” by 2020 and a world leader in science and technology

by 2050.

The Chinese system of innovation is now firmly on the world R&D map with leading research universities, world-class public research centres, modern science and

technology parks, a growing concern for intellectual property rights (as more and more Chinese companies need to protect their innovations) and a surge of compa-

nies investing in R&D. The Chinese model for innovation and Chinese organisations’ breakthroughs are different from the West with greater willingness in China to go

directly from development to manufacturing and shipping products. More and more private Chinese firms are emerging, contributing a rapidly growing

share of innovations. They are very active in the ICT (Information and Communica-tion Technologies) and electronic games. The weight of the SOEs (State-Owned

Enterprises) is decreasing, both as a factor in the GDP and in the production of in-novative offerings, although they still have plenty of room for growth.

1.5.5 Rise Of The Entrepreneur

China has spent 30 years becoming the manufacturing capital of the world, so

coastal cities like Shenzhen and Guangzhou are now crammed with electronics fa-cilities. All have a deep knowledge of how to make things, so it was almost inevita-

ble that home-grown entrepreneurs would get in on the act. Living next to the fac-tories or being able to stroll the electronics markets, they’re the first to know when trends in hardware emerge.

Chinese society is, by and large, highly entrepreneurial, eager to make money and

20 McKinsey “China’s iConsumer 2015: A growing appetite for choice and change”, 2015 21 Ibid.


able to extract value very effectively. With their market-oriented approach to inno-vations, they are ready to experiment and rapidly correct their product. Technology

is only a tool to be successful in the market place. A Chinese entrepreneur may look at a Western product or service offering, deconstruct it and rebuild it in a

leaner way, adapting it along the way to the Chinese consumers, and thus turning otherwise expensive products into big successes.

1.5.6 Consumer Driven Innovation

Innovation from Chinese companies is characterised as “need seeker” as the strat-egy is to identify the needs and desires of end users by engaging them directly,

striving to be the first to market with breakthrough products meeting previously unarticulated needs.

Closeness to the end user is therefore of great importance and luckily, Chinese

consumers also seem to be more willing than their overseas peers to participate in the innovation process by acting as perpetual beta testers. Consumer-facing com-

panies routinely launch new models and continue to refine them based on market feedback.

1.5.7 R&D In China

China has used various regional clusters, pilot programs, and demonstration zones to consolidate R&D activity into specific areas of the country. Buoyed by local gov-

ernment support, advanced infrastructure, and preferential policies covering taxes and R&D expenses, these areas have developed into technology incubators for do-

mestic and foreign companies alike. Examples of these zones include Zhongguan-cun Science Park in Beijing, Zhangjiang Hi-Tech Park in Shanghai, and the Tianjin

Economic-Technological Development Area, although most figures suggest that higher-than-average R&D intensity activity is also concentrated in Jiangsu, Guang-

dong, Zhejiang, Shandong, and Shaanxi provinces. Despite the R&D concentration along China’s east coast, companies are locating some of their R&D operations

throughout China’s interior regions as well.

1.5.8 Importance Of Universities China’s universities graduate more than 1.2 million engineers each year – more

than any other country. Private colleges and universities now account for more than a quarter of all higher education institutions in China, and they are growing at

a faster rate than public ones. Large companies are also getting involved. Alibaba’s Taobao unit, for instance, has established ’Taobao University’, initially to train e-

business owners, managers, and salespeople. In time it will offer business educa-tion to more than a million online students.

Chinese Universities will soon deliver more PHDs every year than any other coun-

try. This is a key pillar in Chinese universities’ plans to become sources of high-quality, creative research and a large contributor to China’s R&D output. The Chi-nese government and many other sources are pumping enormous revenues into

the leading institutions. Within 10 years, the research budgets of China’s elite uni-versities will approach those of their U.S. and European peers. And in engineering

and science, Chinese universities will be among the world’s leaders. As Chinese universities raise their game, they are becoming increasingly interesting innovation

partners for a wide range of domestic and global companies.


China’s large and ever-more sophisticated talent pool is a common reason behind

the rapid expansion of R&D facilities. As companies increasingly rely on local talent to support Chinese R&D, university agreements are becoming an important pipe-

line for talent recruitment, development, and retention. Companies who have opt-ed to explore university partnerships stated that this route can be an effective “corporate branding” strategy. Company-sponsored textbooks, research laborato-

ries, courses, and internship programs are all ways to bolster the company name and profile among engineering and polytechnic students entering the workforce.

What seems to be changing is the growing use of Chinese universities as a form of “outsourced R&D,”. It is however suprising that businesses and universities do not

communicate their partnerships more publicly as this news would benefit both par-ties – from a Corporate Social Responsibility and innovation angle for businesses,

and a practical and prestigious association with industry for universities.


The Mobile & Smart 2.Living of the Chi-nese Consumer

One of the leading areas of R&D in China is the mobile & smart living segment. Six of China’s top-10 companies registering patents are in this sector and they have some of the largest R&D budgets. China developed manufacturing and engineering capabilities early in this area, traditionally for foreign companies, but as entrepreneurs have tapped into this infrastructure, and manufacturers have transi-tioned from OEM to selling direct to consumers, so to have R&D budgets and focus. The industry is supported by strong demand from domestic consumers whose purchasing power has helped fund research and driven investment.

2.1 Consumer Trends

Chinese consumers are seeking convenience and this combined with the rapid technological development has redefined the market for traditional home applianc-

es to become smarter and more interactive. China’s online users have some of the highest mobile penetration rates in the world (89%)22 and home appliances were

one of the fastest growing retail categories in 2015 at 13.5%23.

Already in 2014, 97 % of Chinese consumers wanted smarter home appliances, especially TVs. According to a recent study by Gfk24, more than 75% of Chinese

consumers say that smart home technology will impact their lives in the next few years, compared to the global average of just over 50%. On an industry-wide lev-

el, smart washing machines, refrigerators and air conditioners have all increased their market share over the past year, according to figures from GfK, indicating consumer demand for such high-tech products.

22 iResearch “China’s Internet Industry Summary Report”, 2015 23 National Bureau of Statistics of China, 2015 24 Gfk is Germany’s largest market research institute, conducting consumer and market studies in more than 100 countries. Gfk “Smart Home Appeal in Asia”, 2016


Imported luxury rice cookers and heated toilet seats are also in demand from com-fort and convenience seeking Chinese consumers. This trend is driving Chinese

companies to integrate smart functions into traditionally humble appliances in or-der to take their share of the market.

Appliances such as air purifiers are also gaining popularity as people become in-creasingly health conscious, worried about smog and other environmental hazards.

2.2 Opportunities

2.2.1 Outlook

The future of smart home technology in China looks bright as it is on par with mo-bile payments and wearable tech in playing a key role in pushing forward innova-

tive technology in China. A recent study by Gfk shows that consumers in China are well informed and aware of smart home technology25. GfK analysts predict that the

appliance growth rate will double this year as Chinese consumers become more receptive to innovative technology.

From mobile app-controlled washing machines, to refrigerators with touch screens

and household robots, China’s smart home appliances will see steady growth. Growth opportunities in the industry will be driven by demand from tech-savy Chi-nese consumers who embrace smart home technology to a greater extent than

their global counterparts.

2.2.2 Potential For The Robot Industry

Aside from smart home appliances, the robot industry in China is another potential growth area. Service robots manufactured by industry players like Haier, Midea

and Gree specialise in applications such as home security, detecting water or gas leaks, doing housework, and even telling stories to children.

With an increasingly ageing population in China, the home-caring and home-

nursing robots is expected to have great potential. China’s elderly population, or those above age 64, is expected to grow from 131 million currently to 200 million by 2025, representing 14 % of the total population, according to figures from the

United Nations26. While the robot industry is still at an investment stage in China, the market demand for household robots is expected to increase in the coming

years.

The progress of robot technology will ease the everyday life and make people feel good. Whilst China’s robot industry is immature in comparison to global competi-

tors, the industry is high on the Chinese government’s agenda. In April, a five-year planning proposal vowed to make significant progress by 2020 in the production

capacity, creativity and competitiveness of the industry, driven by a focus on R&D27.

25 Gfk “Smart Home Appeal in Asia”, 2016 26 South China Morning Post, March 2016 http://www.scmp.com/business/companies/article/1929435/tech-savvy-chinese-consumers-drive-growth-smart-home-appliances 27 South China Morning Post, April, 2016 http://www.scmp.com/news/china/policies-politics/article/1934071/chinas-five-year-plan-transform-its-robotics-industry


Breakthroughs were expected in core components of robots including sensors and servomotors, but it also called for building competitive advantage in 10 types of

industrial robots capable of activities like precision welding, surgical applications and vacuum cleaning, performing an array of services and even programming

themselves.

2.3 Socioeconomic Developments, Trends & Drivers

2.3.1 Adaptable Consumers

The Chinese consumers’ hunger for change is powering the growth of the smart home industry in China - Chinese consumers are ready for the smart home, with

54.9% of respondents “very interested” in converting to a smart home, while 36.8% are “fairly interested” with the smart home idea28.

2.3.2 Environmental Concerns

China suffers from a serious smog and pollution problem with 99% of the urban

population breathing air that is considered unsafe by EU standards.

It is therefore not surprising that smart air purifiers and connected air conditioners are big business in China. These connected devices can inform consumers what the

pollution is like in the room compared to outside, and when it is safe to open the windows. Third-party online services can signal connected air conditioners when the outside smog levels reach unhealthy levels. The connected air conditioner can

then start filtering the air from outside.

China’s major pollution issues ensure that any device that can make the air that Chinese consumers breathe in their homes and offices cleaner and safer is going to

be a popular choice. If companies can make these devices smart while at the same time keeping the price tag low, then even better.

Following the growing environmental concerns, air quality forecasting and model-

ling is a focus area of the Chinese government. IBM and Microsoft have signed con-tracts in China for air quality forecasting, using emerging cognitive computing technologies developed in their China-based research labs.

2.4 Technology Developments, Trends & Drivers

2.4.1 Government Investment

To support the 13th Five Year Plan (2016-2020), the Chinese Government is ex-pected to invest more than ¥2 trillion in key areas such as fiber optics, high-speed

broadband and cloud computing.

Between 2010 and 2014, venture capital investments tripled, rising from ¥35.3 bil-lion to ¥110.5 billion, with an investment focus on consumer and mobile-based in-

novations29. Through this, start-ups in China have access to a lot of capital, but it also means that there is an intense competition for the market share, providing

28 Zol.com (a leading IT portal website in China) “Chinese Smart Home Market Outlook Survey”, 2014 29 Boston Consulting Group “The Mobile Revolution: How Mobile Technologies Drive a Trillion-Dollar Impact”, 2015


further impetus to differentiate through R&D.

2.4.2 Internet Of Things (IoT)30

The IoT involves a technological revolution, which will impact everything we do. More connected “things”, will enable the collection of more integrated information

about customers’ behaviour and preferences. Growing 20.4% annually, the IoT market is expected to reach a total value of ¥30.6 trillion in 2018. In 2014, China had more than 50 million Machine to Machine (M2M) connections — compared to

the US’ 32 million and Japan’s 9.3 million according to the GSMA31.

The coming fifth-generation wireless broadband technology will replace the 4G

technology by 2020 for business and consumer use. 5G connections will be 40 times faster than 4G (up to 1 Gb/s) and include a double-layer infrastructure in order to give a preferential space for data flowing “M2M” rather than human to

human. This will further pave the way for the development of the Internet of Things by increasing the productivity and interconnection among different “things”.

Thanks to faster download speeds, it will be possible to stream HD videos with no buffering or waiting time. This will accommodate the need of Chinese consumers to

enjoy TV shows and branded videos from everywhere without necessarily download the videos from a WiFi spot. Higher speed and connectivity with machines will have

positive spillovers towards many industries, as well as foster the introduction of new types of marketing strategies, while enhancing others such as gamification

and interactive digital communications.

China and South Korea are taking the lead in 5G investments with Chinese tele-

communication giant Huawei spending ¥3.72 billion in 5G-related R&D.

2.4.3 O2O

Smart home appliances are representative of the overall Online-to-Offline (O2O) revolution that China is leading the world in – connecting offline objects and ac-

tions with Internet-connected devices (please section 1.5.3). It is an increasing

30 The Internet of Things (IoT) is a network of network of physical objects or “things” such as vehicles, robots, home systems and appliances, traffic lights and so forth. They are embedded with electronics, software, sensors, and connectivity that enable them to exchange data with the manufacturer, operator and/or other devices (Machine to Ma-chine – M2M) connected to the same network. 31 The GSMA is the representative association for GSM cellular networks, the world’s dominant mobile standard. The association represents GSM network & device manufac-tures and operators.


trend coming from innovative Chinese manufacturers which is being supported by tech-hungry Chinese consumers.

2.5 Key Companies

2.5.1 Company Patents

Patents are often used as a measure for innovation in China with the country pro-ducing 928,177 new patent fillings in 2014, more than any other country. Howev-

er, the value of many of these patents is regularly questioned. Nevertheless, pa-tents are also an indication of companies’ focus on Research & Development. Mo-

bile and home appliance companies account for 6 of the top 10 Chinese companies by patents32.

2.5.2 Huawei (41,813 patents)

Huawei is the world’s largest telecommunications equipment manufacturer and

leading information and communications technology (ICT) solutions provider. Driv-en by responsible operations, ongoing innovation, and open collaboration, Huawei

has established a competitive ICT portfolio of end-to-end solutions in telecom and enterprise networks, devices, and cloud computing.

Huawei has consistently invested over 10% of its revenue in R&D every year. In 2015, approximately 79,000 employees were engaged in R&D, comprising 45% of

the total workforce. Huawei's R&D expenditures totalled ¥59,607 million in 2015, accounting for 15.1% of the company's total revenue. Huawei has cumulatively

spent more than ¥240,000 billion on R&D over the past decade.

2.5.3 ZTE Corp (32,649 patents)

ZTE Corporation is a global leader in telecommunications and information technol-ogy. The core products are wireless, exchange, access, optical transmission, and

data telecommunications gear; mobile phones; and telecommunications software. It also offers products that provide value-added services, such as video on demand

and streaming media. The company’s R&D costs for 2015 increased by 35.4% to ¥12.2 billion from ¥9

billion for 2014, and increased from 11.1% for 2014 to 12.2% for 2015 as a per-centage of operating revenue, attributable mainly to the continuous increase in in-

vestment in the R&D of products such as 5G, high-end routers, LTE, SDN, GPON and core chips for the period.

2.5.4 Gree Electric Appliances (8,383 patents)

Gree Electric Appliances is the world's largest air conditioner enterprise integrating

R&D, manufacturing, marketing and services. The company offers two types of air conditioners: household air conditioners and commercial air conditioners. Gree

Electric Appliances also provides electric fans, water dispensers, heaters, rice cookers, air purifiers, water kettles, humidifiers and induction cookers, among oth-ers. The company distributes its products within China’s domestic market and to

32 Forbes, April 2016 http://www.forbes.com/sites/rebeccafannin/2016/04/02/china-innovation-power-far-out-ranks-u-s-and-japan-in-new-patent-applications/#2db43a77371d


overseas markets under the brand name of Gree. Gree invests around ¥1 billion per year in R&D.

2.5.5 Haier Electronics Group (6,406 patents)

Haier is a Chinese multinational consumer electronics and home appliances manu-

facturer. The company designs, develops, manufactures and sells products includ-ing air conditioners, mobile phones, computers, microwave ovens, washing ma-chines, refrigerators, and televisions. Haier is one of the world’s leading white

goods home appliance manufacturers. Haier Group products are now sold in over 100 countries. Investment in R&D is one of the key drivers of Haier’s success - 4%

of annual turnover is invested in this area, with 8,150 staff employed in innovation programmes across the world.

2.5.6 Lenovo (4,874 patents)

Lenovo is a Chinese multinational technology company which designs, develops,

manufactures and sells personal computers, tablet computers, smartphones, work-stations, servers, electronic storage devices, IT management software and smart

televisions. Lenovo has Research & Development centers in China, Japan, Brazil, Chinese Tapei and the US. The company invests around ¥4 billion in R&D globally

per year and has about 3,500 R&D engineers.

2.5.7 BOE Technology Group (4,160 patents)

BOE Technology Group is the world’s leading supplier of semiconductor display

technologies, products and services. BOE’s display products are widely used in a broad spectrum of applications such as mobile phone, tablet, notebook, monitor,

TV, vehicle display and digital information display. In 2015 BOE Technology Group invested ¥3.3 billion in R&D, a year on year increase of 34%

2.5.8 Other relevant companies

2.5.9 Alibaba

NYSE-listed Alibaba is the world’s largest ecommerce company, but has expanded its product portfolio across many areas including cloud computing, fintech, naviga-

tion, physical retail, entertainment, media and sport. Alibaba refers to itself as a ’big data’ company, and utilises its extensive data to assist with R&D to develop consumer-relevant products with a strong focus on O2O integration.

Alibaba Group R&D institute was introduced in 2008 and has since invested heavily

in R&D. Alibaba spent more than ¥13.7 billion on R&D in 2015, 47% more than in 2014. It has over 750 approved patents and has filed over 3,000 in total. It has

partnerships with its Aliyun cloud computing arm and Midea to develop smart in home appliances.

2.5.10 Xiaomi

Privately-owned Xiaomi is one of the highest profile smart appliance companies in

China. It aims to bring products with high-end features and functions at affordable prices to China’s mass market. Xiaomi utilises its strong branding and sales chan-nels developed through its smartphone division (it is the world’s 5th largest small

phone brand by volume) to sell smart home appliances such as in-house enter-tainment hubs and TVs, air purifiers, rice cookers and health products. Xiaomi has

grown in this category through acquiring appliance manufacturers and integrating


its IP, it partners with companies in China and internationally such as Yunmi Tech-nology in China and iHealth Labs of Silicon Valley, USA. In late 2014, Xiaomi ac-

quired 1.2% of Midea Group, indicating its focus in the home appliances category. As a private company, Xiaomi does not disclose its R&D investments, however in-

dustry insiders believe it is lower than competitors, part of their strategy to keep their devices affordable. In 2015, Xiaomi set up its first R&D centre outside of Chi-na in Bangalore, India.

2.5.11 Baidu

Nasdaq-listed Baidu is best known as China’s leading search engine, however it has

recently made significant investments in offline integration, working with partners across categories as varied as home appliances, auto and retail. Baidu’s open plat-

form iHome was launched in late 2014 to encouraging more in-home innovation from Chinese appliance makers integrated by companies such as Lenovo, Haier,

online video platform iQiyi and electronics manufacturer Foxconn. Baidu invests heavily in R&D, spending more than ¥10.5 billion in 2015, 43% more than 2014.

Many of its focuses follow Google and are as diverse as self-driving cars and bikes, robotics and deep learning research which it will likely integrate into smart home

appliances. It has an R&D centre in the Silicon Valley focused on artificial intelli-gence.

2.5.12 Midea

Shenzhen Stock Exchange-listed Midea is China’s largest and most valuable appliance brand, with revenues of ¥162.1 billion in 2014. It has a strong focus on

smart appliances and has products higher on the value curve than many Chinese appliance brands. Midea invests 3% of company-wide revenue into R&D, much of it

through its Guangdong-based Midea Research Centre focusing on air conditioning, refrigeration, laundry, motors, dish washing and kitchen appliances.

In addition to Xiaomi’s 1.2% ownership of Midea, the company also works with Alibaba in developing Internet-connected appliances. Midea has actively applied

for China’s ’light’ utility model patents, and was granted 2,070 in 2014 alone. In March 2016, Midea acquired 80.1% of Toshiba’s home appliance division, obtaining more than 5,000 IP-rated assets mainly made up of patents.

2.5.13 JD.com

Nasdaq-listed Jingdong is China’s second-largest ecommerce company, 15%

owned by Tencent. In late-2014, JD.com introduced China’s first super APP that allowed users to manage and control over 40 smart products from different

manufacturers. JD’s R&D is focused on mobile applications, cloud computing and big data infrastructure. In late 2015, the company opened an R&D centre in the

Silicon Valley, USA, with its main focus developing and enhancing new and existing technologies that will improve the user experience for its customers.


2.5.14 Cross-Industry Partnerships

Sharing and partnering between tech and white goods companies has been pivotal

for the growth of the industry. All companies have their boundaries, but by com-bining capabilities it is possible to provide the perfect user experience to consum-

ers.

Examples of Cross Industry Partnerships


2.6 Industry & Academic Partnerships

In the smart home technology industry, cooperation and openness are perceived

as crucial drivers of innovation. This is reflected in the cross industry partnerships, but also in the cooperation between companies and the academic world. The part-

nerships are mutually beneficial –giving rise to new technologies at a faster pace, spurring the innovation spirit, attracting talent and modernising the role of univer-sities by promoting the application and commercialisation of technological

achievements.

• Huawei worked with European universities to research key component behavior models. To address the dense deployment of base stations in the future, the company explored a business model for crowdsourc-

ing-based network construction for micro base stations integrated into intelligent street lighting.

• Collaborated with research institutes to propose a novel server archi-

tecture that enables a Programmable Architecture for Resourcing on- Demand (PARD) and full hardware virtualization for data centers. The

proposed architecture won high acclaim from academics.

• Worked extensively with prestigious universities, companies focused on technological innovation, and open source organizations in the are-as of distributed storage, storage class memory (SCM) systems, cloud

computing platforms, Big Data, artificial intelligence, knowledge librar-ies, and HD video, in order to drive technological innovation.

• In November 2015, Huawei introduced the Huawei Innovation Re-

search Program (HIRP). The HIRP has attracted around 100 academic institutions and over 1,000 scholars, and has funded the research of

thousands of graduate students. In 2015, the HIRP sponsored over 100 new research projects to further strengthen basic research and

technological innovation.

Huawei - Leading in R&D Collaboration


2.6.1 Other Examples Of Partnership With Universities

University Company(ies) Project

Tsinghua University Intel and China electro-

nics

A three party cooperation about the research and

development of China's semiconductors

Fudan University Shanghai electron Ltd The project focuses on cloud computing and big

data

Nanjing University Nanda electronic infor-

mation Ltd

The project includes

cloud computing and in-telligent robot

2.7 Challenges

China’s innovation focus for mobile and smart living over the past few years has been predominantly home grown, with significant investment in locally-based R&D.

This R&D has usually focused on improving or localising technologies seen else-where without infringing on patents, however there is an increasing focus to better

meet Chinese consumers’ unique needs from local innovations.

Danish SMEs will need to provide a significant point of difference over locally inno-vated technology to be attractive partners, technology sellers or acquisition targets for Chinese firms. Nevertheless, there are examples of large Chinese firms in this

sector setting up R&D centres in globally-recognised innovation hubs such as the Silicon Valley and Bangalore, and acquisitions such as Lenovo’s buyout of Motorola

for its patents and Xiaomi purchasing patents from Microsoft.

With most technology in this area linked to the Internet, data will need to be ac-cessible and hosted within China to ensure acceptable performance. In many cas-

es, this will require a firm to provide Government access to data and often algo-rithms or a JV with a local business, both which pose risks such as IP theft.

As smart homes are now spreading into almost every item in a household, Den-mark can capitalise on its enviable reputation for furniture and fashion design and

general lifestyle leadership, to incorporate smart technologies which will make dis-cerning Chinese consumers and businesses take notice, while developing a local-

ised component, allowing opportunities for academic and business partnerships.


Food Quality, Sa-3.fety & Healthy Foods

China’s focus on food R&D has been driven by a number of factors. Firstly, China has 21% of the world’s population and just 9% of the world’s arable land requiring efficient technologies to create more with less. This is compounded by the fact that a significant share of China’s food producers is made up of millions of peasant farmers from the early Communist Party mandate, resulting in a fragmented and inefficient supply chain desperate for improvements. Increasingly affluent, educated and aware Chinese consumers are also demanding healthier, safer and trackable food sources, and much more of it. This is most effectively obtained through innovation. Increased investment in food production and standards, coupled with tighter regulations, has been a key focus for the Govern-ment who aims to build confidence in Chinese supply chains, keep health scares to a minimum and maximise self-sufficiency. Savy companies are also learning that this investment is required to stay competitive for increasingly discerning consumers.

3.1 Consumer Trends

The poor environment and China’s track record for rotten, tampered and unsafe

food and food chains have made Chinese consumers the least trusting and most food-safety conscious in the world. The source of food has become a matter of life

and death.


80% of Chinese consumers are not satisfied with food safety, with 58% concerned about production and processing33. Scandals spread like wildfire on social media

meaning consumers are more discerning and stringent when buying both local and foreign brands. They trust and favour better-known brands. In addition, consum-

ers are more educated and are aware of unhealthy environmental factors and take maintaining health into their own hands.

Foreign brands typically represent safe and healthy to Chinese consumers but they are growing increasingly more aware that this is no guarantee. Between 2013 and

2015 the fast food chain KFC saw negative growth due to a lack of trust in the supply chain and healthier preferences, and Oreo, whose sales were once doubling

every two years, now sees low single-digit growth as consumers opt for healthier alternatives, forcing its parent company Modelez to alter its offerings.

According to a 2016 study by McKinsey, 72% of consumers now worry that the food they eat is harmful to their health, up from 60% in 2012. Over 50% of con-

sumers are now focused on eating healthy and nutritious foods. 38% of consumers mention ‘organic/green food’ among their top three criteria to identify the safety of

food, despite the absence of a credible organic certification in China.

3.2 Socioeconomic Developments, Trends & Drivers

3.2.1 Growing Population

With China’s population set to surpass 1.4 billion by 2030 and become increasingly

affluent, demand for food continues to grow. This is putting pressure on both food supplies and suppliers that produce that food. One example is cereal grains, were

demand is rising as the population eats ever more beef and pork. The country needs a quantum leap in agricultural productivity if it is going to feed its population

in a generation’s time. Food shortages, or spiking prices for food, have been a rec-ipe for unrest, rebellion, and imperial downfall in China for hundreds of years. Food security is a key political priority and agricultural innovation is on top of the na-

tion’s wish list.

3.2.2 Urban Lifestyles

Chinese consumers’ busy, urban lifestyles have led to an increase in obesity and other white-collar associated diseases. The prevalence of diabetes in Chinese

adults has increased from less than 1% in 1980 to 9.4% in 201434, far exceeding global growth in the disease. On the bright side, urbanisation has also led to more

interest in proactive health via food and food safety.

3.2.3 Rural Skills Gap

As a result of poor education in rural China, 70% of people working on the land have only received a primary or middle school education. In recent years, those

who are better educated have moved to the cities. Following this brain drain, farm-ers now tend to have a lower ability to adopt modern farming techniques. In re-sponse, local governments have rolled out various training programmes. While

33 Horizon Research (a Beijing based research company) Food Safety Survey, 2014 http://www.chinadaily.com.cn/china/2014-07/25/content_17920201.htm 34 World Health Organisation “Global Report on Diabetes” 2016


these have been fruitful, the technical levels achieved are still below the needs of rural development. The old ways of farming can no longer ensure reliable and sus-

tainable food supplies, and new techniques are often misunderstood such as the over-use of pesticide, meaning new technologies and processes are needed to

solve the problem which is driving R&D investment in the sector.

3.2.4 New Food Safety Law

One pillar of China’s 13th five-year plan is to tighten food safety including steps to

advance a stringent and highly efficient food safety management system. The new law bans highly toxic pesticides, regulates food labelling and, increases punish-

ments for those who violate China's existing laws. This new national food safety law imposes significant new safety requirements on producers, distributors, retail-

ers and even online marketplaces. To compliment the new laws, government investment in food quality/safety and

food technology almost doubled from 2011 to 2014.


3.3 Technology Developments, Trends & Drivers

3.3.1 Modernisation of Agricultural Farming

Over the last 30 years, Chinese agriculture has been shaped by intense modernisa-tion, industrialisation and rapid levels of urbanization and its citizens have become

richer. But the trade-off has been depletion in arable land due to urban creep and excessive use of fertilisers, pesticides and plastic sheeting. Structural inefficiencies in the food value chain have also made it difficult to provide safe, accessible and

affordable food to the market.

Farmers remain China’s largest consumer group and modernisation of agricultural practices would not only improve productivity and food safety, but also increase

farmers’ incomes. Modernisation requires a shift from production volumes to con-sumer demands and innovation in agricultural investment and financing mecha-

nisms, follow-up or supporting projects for medium- to large-scale irrigation facili-ties, water-efficient technology, and achieving breakthroughs in environment-

friendly production systems.

¥ Billion


The interest in sustainable food production is growing and modern technologies such as smart cards, hybrid seed technology to improve crop yields,

corn farming mechanization and high-rise pigpens are now being taken up by Chi-nese farmers. The introduction of drones that utilise advanced sensors, low-cost

aerial camera platforms and autopilot capabilities can give farmers the ability to view their crops from above, detect and assess irrigation issues, pest infestations, plant health and provide soil analysis.

3.3.2 Supply Chain Connectivity And Integration

China is rapidly integrating and connecting the most important links of its food

supply chains. Food production, distribution, processing, marketing and consumer purchasing are all undergoing a period of rapid electronic integration which when

fully realized will represent the world’s most expansive food traceability system.

The use of QR codes on food labels integrated with popular mobile social media platforms like WeChat allows customers to interact with brands, verify product au-thenticity, view marketing information, avail of promotional offers and ultimately

purchase in an extremely convenient way. Using smartphone applications and online solutions, consumers can now easily scan and receive information regarding

products’ farm-table cycles.

Farming innovation comes in both high-tech and simple forms. A ¥1.3 bil-

lion project supported by the World Bank helps Guangdong farmers benefit from new technologies that promote sustainable agriculture. The project

provides subsidies and technical support to more than 100,000 households to enable them to adopt environmentally friendly crop production practices. Participating farmers receive an IC card that contains their name, the size

of their land, the amounts of subsidized fertilizers and pesticides they can get and the corresponding subsidy level. By reducing the amount of pesti-cides and fertilizers used, farmers no longer pollute local water systems or

overwhelm their products with excess chemicals.

According to the project management office, fertilizer application dropped by 24% for the spring rice and 12% for the autumn rice in 2014, while ap-

plied pesticide amounts for rice dropped by 27%. The spring rice yields grew six percent and autumn rice yields rose by 19%.

World Bank Project With Guangdong Farmers


3.4 Key Companies

3.4.1 COFCO Group

COFCO Group is the largest supplier of diversified products and services in the ag-ricultural products and food industry in China. It is devoted to utilizing renewable

natural resources to provide healthy and nutritious food, high quality lifestyle and services, as well as contributing to improve people’s living standards, social pros-perity and stability.

Technology innovation at COFCO focuses on achieving balance between economic

growth and environmental sustainability. The company has registered patents for core technologies in this area, resulting in a continuous operation of the cellulosic

ethanol pilot trial project. Some key indicators of the project, such as conversion rate and cost, are now global best practice while the low-carbon clean energy has

been developed without sacrificing more grain. COFCO Nutrition and Health Research Institute focuses on life sciences and is

committed to health and nutrition and oriented towards the customer. The institute is dedicated to offering technical support for the value chain and developing inno-

vative quality products so as to lead the Chinese people's dietary habits and ulti-mately promote the nation’s health and improve the life expectancy of Chinese

people.

3.4.2 Alesca Life

Alesca Life produces shipping containers that are modified with hydroponic sys-tems, designed to house more produce per square meter than any other method. The systems are pesticide and herbicide free, and are almost wholly run on soft-

ware, meaning each container requires no more than two hours of labour to main-tain each week.

Using Alesca Life’s solution, plants grow faster with the highest quality and fresh-

ness. By combining hydroponic cultivation techniques and advanced software management, it is also dramatically more water and land efficient than traditional

field methods. The biggest difference between industrial agriculture and Alesca Life’s solution is that vegetables are grown in water rather than soil and using LEDs

in place of sunlight. The company has products designed for restaurants and homes to make urban farming more affordable and accessible to everyone.

3.4.3 DJI

DJI is a Shenzhen based company and a world leader in unmanned aerial vehicle technology. The innovation focus of the company is to transform complex technol-

ogy into easy to use devices.

In November 2015 the company launched a smart, crop-spraying agriculture drone. The drone can load more than 10 kilograms of liquid for crop-spraying and

can cover between seven and 10 acres per hour. It is over 40 times more-efficient than manual spraying and can improve the efficiency of agricultural production.

The drone can fly up to eight meters per second and adjusts spraying intensity to flying speed, ensuring even coverage.


3.4.4 Yili Group

The Yili Group is the largest dairy manufacturer in China and is dedicated to pro-

ducing 100% safe and healthy dairy products. Yili has an open and flexible ap-proach to innovation and is at the forefront of agricultural food research, thanks to

its wide-spanning partnerships from the academic world to international compa-nies. Yili accommodates Chinese consumers’ growing demand for health and safe supplies, forming the first dairy research institute in China, constructed the first

Chinese breast-milk database, launched the mother-baby nutrition research center, and released the first China Breast Milk Research White Paper, leading the China

mother and baby nutrition research into systematical and formatted research era.

3.4.5 Baidu

As a response to gutter oil scandal in 2014, Baidu, the country’s leading search engine, is developing “smart” chopsticks that tests whether cooking oil is contami-

nated. The chopsticks have sensors that can detect the freshness of cooking oil by measuring indicators such as its pH level, peroxide value and temperature. The

product is not launched yet, but the vision is to make it possible to test the origin of food, whether it is contaminated and the nutritional value.

3.4.6 Gliding Eagle

Due to China’s reputation for fake and counterfeit products, the American company Gilding Eagle has built a unique cloud and mobile based technology system to track

a product’s complete supply chain from the producer to the end consumer any-where in the world. The technology has a strong focus on the China market. The

company connects premium American brands and Chinese consumers and initially started with branded high end wines and natural consumer products.

3.4.7 Lenovo & Joyvio

Lenovo started Joyvio, an agricultural company that tracks fruit from planting to

delivery with the vision of creating a consumer trusted brand of safe and high qual-ity agricultural products. Joyvio controls everything from picking what seeds are

planted, then tracking and collecting data each step of the way. Today Joyvio is looking to expand into the tea and wine industries.

3.5 Acquisition of Foreign R&D

3.5.1 China National Chemical Corporation Acquires Syngenta

Self-sufficiency for food production is high on the Chinese government’s agenda

and the strong focus was clearly demonstrated when the state-owned company China National Chemical Corporation in February 2016 announced that it will shell

out ¥283 billion to buy the Swiss company Syngenta. It is the largest foreign ac-quisition to date. Syngenta is one of the world’s biggest producers of crop protec-

tion products, including pesticides, fungicides and seeds that can increase harvests of corn, rice, and wheat. Furthermore, the company develops genetically engi-

neered seeds that may help further open the tightly-regulated Chinese market for biotech crops.


3.6 Industry and Academic Partnerships

3.6.1 COFCO Group and CAAS

COFCO and the Chinese Academy of Agricultural Sciences (CAAS) cooperate in the scientific fields of modern seed industry, protected agriculture, the processing of

cereals, oil, fruit and vegetables, food quality and safety, animal nutrition and feed, nutrition and health, and joint training programs has been brought forward and delivered remarkable results. The COFCO Farm, co-established with CAAS officially

opened to the public in October 2015.

3.6.2 Yili Group and Wagenigen University

Yili has entered into comprehensive partnership with a wide range of world-class universities, research institutes, and organizations in terms of nutrition and health,

product development, food safety, agricultural science, animal husbandry and vet-erinary medicine, eco-environment protection, business management, and talent

cultivation. Yili Group co-established an R&D centre located in the Netherlands together with

the nation’s Wageningen University in 2014. The R&D centre will focus on develop-ing Yili’s milk-cow cultivation, product research and food safety standards, thus be-

coming the most important entity within the company’s global R&D operations.

3.6.3 Nestle Food Safety Institute

The Nestlé Food Safety Institute (NFSI) works closely with authorities to help pro-

vide the scientific foundation for food safety policies and standards. The company opened a food safety research centre in Beijing. Support will include early man-

agement of food safety issues and collaboration with local universities, research institutes and government agencies on food safety issues. It will also promote sci-

entific communication and help run food safety training programmes. Nestle has three R&D centres in China: Dongguan, Shanghai and Beijing

As a response to Chinese consumers’ growing demand for healthy and pro-tein rich diets, scientists from Northwest A&F University and the National

Beef Cattle Improvement Center in Shaanxi have bred cattle that contains higher levels of omega-3 fatty acids, typically associated with fish. The team introduced a gene known as fat1 into foetal cells from Luxi Yellow

cattle – increasing the levels of beneficial oils by over five times.

The researchers believe the results of their study will contribute to better beef in the future. They also acknowledge that there is still much to learn about best practice, scientific techniques and the best husbandry required to make beef a rich animal source of omega-3 oils for human nutrition, but it all represents progress.

Chinese Scientists Catering to Health Focus




Shandong University Jinan Shunan Luyuan Health Food

Research on organic food

China Agricultural

University Mengniu dairy Ltd

How to improve feed conversion rate and feed

quality control

Jilin University Little Swan Instrument

Co Ltd

Research of detection for beneficial and harmful components in food

Jiangnan University Suya food Ltd Optimization of sprouts

production process

Zhejiang Ocean Uni-

versity

Zhoushan Yingzhou Fi-sheries Ltd

Quality and safety con-

trol on fisheries industry

3.7 Challenges

The Chinese Government’s focus on the modernisation of agriculture presents sig-nificant opportunities for farming technology. Food related research by China

Skinny has found Nordic countries are considered leaders in developing and main-taining food production systems and technologies. The reputation would put Den-mark on the front foot when establishing business development pipelines or poten-

tial partnerships. However, like everything in China, IP theft should always be a consideration and practices should be taken to minimise the risk of this.

The consumer demand for technologies such as trackable supply chains can also

capitalise on Denmark’s reputation for safe and transparent food production and supply chains. However, incorporating technology and the Internet on a medium-

large scale is likely to require some Government participation and/or a JV. Aca-demic partnerships could be a feasible option for this.

The Chinese Government places utmost importance on China’s food chain and has issued some of the strictest rules globally. However, these rules are often open to

interpretation and implementation can vary significantly between regions.


Patient Centric & 4.Value-adding Health Care Solu-tions

Chinese manufacturers have traditionally created low-cost health equipment, but higher wages, developed infrastruc-ture and global aspirations have pushed health manufactur-ers up the value curve, which has been met with increased investment in R&D. Health innovation is also being pushed by the ever growing health concerns from consumers and inefficient processes, along with an aging population and worsening health as a result of ’white-collar diseases’ through urbanisation and increased pollution. The lack of trust in health suppliers following countless scandals, has created a large source of demand for innovative solutions, which has seen health-focused R&D span far from tradition-al health and medical companies and institutions, but increased significant investments from tech companies, companies such as Alibaba, Tencent and Huawei.

4.1 Consumer Trends

New urban lifestyles have led to Chinese consumers to become increasingly docile.

Changing diets including more processed food have led to 20% of children in China being obese and 92.4 million adults suffering from diabetes. Combined with stress

in their professional lives, health problems are rising among Chinese consumers. With limited faith in China’s public health service, growing wealth and education,

Chinese are placing increased emphasis on proactively maintaining their health, driving consumption trends and developments. Due to an expanding middle class and rapid urbanisation, private spending on


health care services is rising, accounting for 7% of per capita expenses in 2014.35 In addition to increasing expenditure and awareness, access to health care services

is on the rise; however, 67% of Chinese patients do not trust the professional di-agnosis and treatment of doctors due to poor services and facilities.

As a result, 60,000 Chinese are travelling abroad yearly to treat chronic diseases or cancer; giving birth and anti-aging therapies and two thirds of China’s million-

aires would consider seeking health care overseas.36 In order to respond to Chi-nese patients’ needs and demands, domestic health care institutions are working

on improving facilities and reputation, creating innovations such as smartphone applications that ease communication processes and even enable the consultation

of overseas doctors before visiting a hospital nearby.

4.2 Socioeconomic and Technology Drivers

While Chinese consumers in urban areas have a vast choice of hospitals and clinics, logistics in rural areas are less developed with smaller villages only providing clin-

ics that have the means to treat basic diseases. Many innovations aim to develop the rural infrastructure in order to improve health supply in remote areas. The ag-

ing population and digitalisation are the main drivers for health care innovations.

4.2.1 Digital Health Care Innovations

China’s size and regional differences are driving demand for technologies that facil-

itate access to health products and services, particularly in rural areas where pa-tients have limited access to physical treatment institutions that often only provide

basic diagnosis and treatments. Digital is a main driver of health care with spend-ing in this sector is expected to grow 37-fold from 2014 to reach ¥724 billion in

2020.37

Businesses with apps in physician-to-patient communication services and disease management rise in popularity, receiving funding of ¥4.6 billion in 2014,38 account-

ing for 23% of the sector’s overall spending. Top digital companies are additionally leveraging on their expertise such as Tencent investing ¥460 million into China’s largest online health care service community DXY. Other incentives include booking

doctor appointments online, joining hospital queues online, paying via digital pro-viders or improving hospitals’ efficiency through digital tools.

4.2.2 Ageing Population

There are over 200 million Chinese over the age of 60, making China’s elderly

population the largest in the world. This number is expected to rise to 243 million by 2020 and 400 million by 2050.39 With life expectancy increasing from 74.8

years in 2010 to 77 years by 2020,40 China’s aging population will contribute signif-icantly to the growth of the health care sector.

China’s position as the largest market for elderly globally will continue to grow,

35 National Bureau of Statistics of China, 2015 36 Statistics from Shanghai Medical Tourism Products and Promotion Platform 37 Boston Consulting Group “China’s Digital Health Care Revolution”, 2015 38 Ibid. 39 Statistics from China National Committee on Aging 40 Statistics from China’s Ministry of Health


goods and services for China’s aging population will account for 1/3 of the econo-my by 2050, reaching ¥112 trillion, compared to ¥4.3 trillion in 2014. Health care

will be a major component of elderly’s spending, being a main driver of the indus-try.

4.3 Government Investment

China’s investment in health care is historically low but has grown by over 600% since 200041 and is expected to rise to ¥6.6 trillion by 2020.42 Drugs treating can-

cer and rare diseases will bear a special focus and are expected to increase at a CAGR43 of 6-9% to account for one fifth of the overall health expenditures. With

insurances only covering the most basic treatments, out of pocket payments cur-rently account for 72.3%44 of health care services, compared to 14% in Denmark.45

In order to improve health care for Chinese citizens, the State Council established

the ‘Outline of National Health Care Service System Planning (2015-2020)’, a five-year blueprint focussing on key areas for development by 2020. The three sectors

emphasised were infrastructure development, reduction of cost and new invest-ment, with the plan set to reduce shortages and enhance health care availability in

rural areas. The following chart showcases the shift in China’s health care R&D expenditure as

an attempt to improve the status quo. Data for 2009 was not available.

Source: National Bureau of Statistics of China China’s Ministry of Health spent ¥7.2 billion on new drug development in the past five years and plans to invest an additional ¥62.5 billion to digitalise hospital rec-

ords and implement data exchange and regional health care systems.

41 Nuviun, 2014 http://nuviun.com/content/digital-health-in-china-part-II-what-solutions-are-available-to-meet-healthcare-challenges 42 McKinsey “Health Care in China: Entering ‘Uncharted Waters’”, 2012 43 The compound annual growth rate (CAGR) is the mean annual growth rate of an in-vestment over a specified period of time 44 World Bank, 2015 http://data.worldbank.org/indicator/SH.XPD.OOPC.ZS 45 OECD “How Does Health Spending in Denmark Compare?”, 2015

0

5

10

15

20

25

30

35

40

45

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Investment into Health Care R&D (¥ billion)


4.4 Key Companies

With the opportunities and size of the pie in China’s health care market many com-

panies and organizations, both within and outside the industry, are taking actions to be a part of the industry and health care companies are increasing their R&D

budgets.

4.4.1 Huawei

Huawei is a prime example of a company expanding into new sectors with the

growing demand for IT technologies in the healthcare industry. The company has developed new solutions specifically for the industry such as advanced telemedi-

cine applications, remote HD video, remote surgery demonstrations, medical video on-demand and remote doctor visits. The mobile healthcare solutions make it pos-

sible for patients to seek medical advice and information from a distance and im-proves the efficiency of the healthcare system and reduce the costs.

4.4.2 Apricot Forest

To solve some of the inefficiencies of China’s health care system and doctor’s lack

of data about their patients, their records and illness, the Beijing based tech com-pany, Apricot Forest, offers three apps. The primary app, MedClip, is an all-in-one

patient system where doctors can photograph, store, and organize patient records; dictate notes directly into a patient’s chart; send patients reminders and educa-tional materials via WeChat and consult with other doctors on difficult cases. The

second, e-Pocket, contains reference materials, such as drug formularies and spe-cialized calculators. Finally, Medical Journals helps doctors stay up-to-date on the

latest research literature. 25% of China’s 2.5 million doctors now use at least one of Apricot Forest’s apps, and about 2,000 new physicians sign up every day46.

4.4.3 Alibaba Healthcare Unit

Alibaba Health Information Technology is the healthcare subsidiary of e-commerce

giant Alibaba Group. In 2014 the company acquired the drug data company, CITIC 21CN, with the purpose to create an app that make it possible for users to verify

the authenticity of their drugs through barcode scan. Alibaba Health’s mission is to build an online community in order to connect participants in China’s healthcare

market and is one step closer to improve healthcare technology by using cloud computing with the investment worth ¥225 million in a medical imaging company

called Wanliyun Medical Information Technology in March 2016.

4.4.4 Guahao

Guahao is a health care start-up responding to China’s inefficient appointment sys-

tem with its quick-booking service and easing access of information through its large database of information on doctors, specialists and procedures. Companies

such as Hillhouse Captial, Goldman Sachs, Tencent, China Development Bank Capi-tal and Fosun have in total invested ¥2.6 billion in the start-up. Guahao plans to

build a nationwide internet platform for diagnosis and treatment, and another ¥987 million to create five surgery centers in cooperation with top-end local medical

companies.

46 Fast Company “Most Innovative Companies”, 2015


4.4.5 Mindray

Mindray Medical International, located in Shenzhen, is one of the world's biggest

providers of medical devices and solution in the fields of Patient Monitoring & Life Support, In-Vitro Diagnostics, and Medical Imaging. Inspired by the needs of the

patients, the company adopts advanced technologies and transform them into ac-cessible innovation. Mindray has built a global R&D network with research centers in Seattle, New Jersey, Shenzhen, Beijing, Nanjing Chengdu and Xi’an. Mindray

spends around 10% of its sales income each year on R&D.

4.4.6 Microport

MicroPort is a leading medical device company with business focusing on innovat-ing, manufacturing, and marketing high-quality and high-end medical devices

globally. The company covers 10 major medical disciplines including interventional cardiology, orthopaedics, interventional radiology, electrophysiology, diabetes and

endocrine management and surgical management. Mindray has a strong focus on technology innovation with over 1,600 issued patents, and a global workforce of

over 3,000 employees. The goal is to continually develop leading technologies and products for physicians, with life-saving solutions and treatments for patients. Mi-

croport’s investment in R&D doubled from ¥192.1 million in 2013 to ¥397.4 million in 2015.

4.4.7 Chi-Med

Chi-Med is a China based healthcare group with a global focus. The innovation side of the company focuses on discovering and developing innovative therapeutics in

oncology and autoimmune diseases, while the commercial side rapidly sells the pharmaceuticals and health-related consumer products once approved in China.

Chi-Med’s investment in R&D increased from ¥196.7 million in 2014 to ¥311.4 mil-lion in 2015, an increase of 59%.

Chi-Med’s partners include AstraZeneca and Lily in oncology, and Nestlé Health

Science and Janssen in immunology. The partners have invested in the company’s clinical development programmes, allowing Chi-Med to realise their potential in China and the rest of the world.


4.5.1 Mindray

Mindray has long been a leader in blood analysis and the advances in automated blood analysis have provided critical insights with rich data and detail into patients'

health for doctors. Through the development phase of Mindray BC-6800 the com-pany worked with research partners such as Fine Chemical Laboratory of Dalian

University of Technology, 863 Program of the China's State High-Tech Develop-ment Plan, the Institute of Haematology of Suzhou University, the National Centre

for Clinical Laboratories as well as top hospitals.

4.5.2 Qualcomm and the George Institute for Global Health

Qualcomm and the George Institute for Global Health have established the China

Centre for mHealth Innovation (CCmHI) in November 2014. The goal of this part-nership is to support the Chinese government’s goal of improving community

healthcare in China. Working with central and provincial governments, CCmHI will


help improve community healthcare in China by developing mHealth solutions, im-plementing clinical evaluations and contributing to strategies for the implementa-

tion and scale-up of effective and affordable mHealth tools.

4.5.3 Bayer Partnership with CNHDR

In June 2015, China National Health Development Research Centre (NHDRC) and Bayer HealthCare Company signed a cooperation agreement to build a sustainable medical quality improvement and evaluation system in county public hospitals in

China. The project is expected to serve as a reference for the nationwide public hospital reform.

4.5.4 Other Examples of Partnership With Universities


Tsinghua University Shanghai RAAS Ltd

R&D and achievements trans-

formation for blood products

Peking University Founder Group Research on mental health care

Shanghai Jiao Tong

University

Hua Han health industry

holdings Ltd

Research on new

drugs

Fudan University Vanke Group

The construction of

International Children's healthcare

hospital

Huazhong University of

Science and Technology

Grand Pharmaceutical

(China) Co, Ltd

New drug Develop-

ment

Sun yat-sen university Jin Jia gene Ltd

Edit and altered the

gene for healthcare pur-

pose

Sichuan University Apeloa Pharmacy Ltd Development of bio-

tech drugs

The Second Military

Medical University Shanghai Pharmacy Ltd

Development of drugs

and medical instruments

Zhejiang University Aux Ltd Development of pri-vate hospital for

healthcare

Central South University Truking science and tech-

nology Ltd Medical robot project


4.6 Acquisitions and Foreign R&D

Many Multinational Corporations (MNC) have shown interest in the Chinese

healthcare market as seen by the deals signed between MNC’s and Chinese firms: Pfizer said in February that it will own 49% of a ¥1.9 billion venture with Zhejiang

Hisun Pharmaceutical to develop off- patent drugs in China, and Merck & Co. inked a deal with Nanjing-based Simcere Pharmaceutical to produce cardiovascular medi-cines. According to Sequoia Capital China with the government support, emergence

of healthcare talents, and the development of China’s capital markets, the sector has become burgeoning and innovative.

4.6.1 Wenzhou Kangning Hospital

Among the listings this year is Wenzhou Kangning Hospital, China’s largest private

psychiatric hospital operator by revenue, raised ¥579 million through a Hong Kong IPO in November 2015.

4.6.2 Biostime International

Guangzhou-headquartered infant formula manufacturer Biostime International ac-

quired Australian vitamin maker Swisse Wellness Group for ¥5.9 billion in Septem-ber, making it the largest-ever outbound health-targeted acquisition.

4.6.3 iKang Healthcare Group

Leading preventive healthcare provider iKang Healthcare Group announced it had received a non-binding ¥9.9 billion acquisition offer from a consortium of investors

including its main local rival, Meinian Onehealth Healthcare.

4.6.4 Hao Capital

In September 2015 Hao Capital invested ¥82.2 million in hospital IT provider, DJ HealthUnion Systems, one of the latest private equity firms to back China’s push to

improve healthcare for its aging population.

4.6.5 Olympus Capital Asia

Olympus Capital Asia recently invested ¥263.2 million in China's Tian Jian Hua Xia Medical, or Tendcare Medical, a private hospital management company, to help

fund the company’s expansion program.

4.6.6 Fresenius Medical Care

In November 2015 Fresenius Medical Care, the world's leading renal company, in-

augurated the new China Design Centre (CDC) located in Caohejing Hi-Tech Park in the Minhang District in Shanghai with an opening ceremony in October 2015. The

new state-of-the-art facility signals an important step towards consolidating the company's position as the global leader in dialysis products while servicing millions

of renal patients in China and the AsiaPacific region

4.7 Challenges

Whilst Chinese health equipment manufacturers have previously only focused on

low end health equipment, manufacturers are increasingly dominating the mid-range, and providing products and services of equal performance for a lower cost. Companies such as Mindray are also making notable R&D investments and creep-

ing into the high end sectors. The low cost of entry for manufacturing health equipment in China, also means the market is fragmented, with many small play-


ers working on paper-thin margins. For example, there are 4,800 optical equip-ment manufacturers in China, but just 200 generate revenue of ¥20 million or

more47.

With increasingly more affluent Chinese consumers unprepared to fight the crowds in public hospitals, there is a growing preference for consumers to use expensive private hospitals. These hospitals will be open to investing in premium health

equipment and solutions to cater to wealthy patient expectations. This growing segment poses the greatest opportunity for Danish health innovations who are

more likely to compete on performance and service than price.

In saying that, 92% of China’s hospital admissions were to public hospitals in 201248, meaning the Chinese Government is still the dominant decision maker on

purchasing health equipment and are very price-focused, creating a difficult sell for higher-priced Danish solutions.

Danish companies considering solutions for lower tier cities and rural areas should

consider that these customers are more price sensitive and can be harder to reach through well-known distribution partners. Electricity supply can also be less relia-ble than in developed cities.

Scalable consumer-level health technologies face a similar challenge to other In-

ternet-connected tools and are likely to require Government participation, particu-larly with sensitive customer data. Joint ventures could provide a solution for this,

as could academic partnerships, but due diligence should be performed to ensure that partners can be trusted.

47 Research Report of China’s Optical Industry’ by China Center for Health Development at Peking University 48 The Hospital of the Future in China: China’s Reform of Public Hospitals and Trends from Industrialized Countries by The London School of Hygiene and Tropical Medicine


China’s Response 5.to Pollution & Cli-mate Change

China’s environment is facing severe challenges that are influencing consumer demands and technological develop-ments. With 19.4% of China’s soil being dangerously polluted, 80% of groundwater in major river basins being unsafe for human contact49and rising smog levels, Chinese consumers are increasingly demanding technologies that help protect them from the impacts of pollution. The Chinese Government is acknowledging the need for reforms in the 13th Five-Year Plan, investing ¥6-10 trillion50in environmental innovation. Companies like Alibaba are contributing to R&D initiatives, funding projects that are cutting-edge of research, technology and conservation with up to ¥330,000 per project. Driven by consumers’ demand, government emphasis as well as the private sector, multiple incentives and cooperations invest into research and innovations that aim to improve China’s environment.

5.1 Consumer Trends

A China Skinny study in early-2013 found that education was the main reason for migrating, but only 12 months later 80% of Chinese consumers stated air pollution as the primary cause for moving abroad. With Chinese consumers becoming more

aware and conscious about the importance of a clean environment, the number of air purifiers sold nearly quadrupled between 2010-2015 to 4.4 million units, con-

stantly improving functionality and efficiency.

Even though initiatives such as the ’Under the Dome’ documentary helped raise

49 National Bureau of Statistics of China, 2016 50 Ibid.


awareness among Chinese consumers about problems and individual accountabil-ity, many still mostly rely on the government to solve pollution issues. While nu-

merous efforts are being initiated, the Chinese Government is simultaneously con-cerned about social instability as Chinese consumers’ awareness for pollution is ris-

ing, banning reports that become too viral and stir up discussions. 59% of consumers consider environmental quality as important when buying food

and beverage products and many surveys indicate that they are prepared to pay a premium for products and services from environmentally responsible companies,

but this rarely translates in reality. Much of the sustainable activity that China scored well in the 2014 National Geographic Greendex survey is more out of cir-

cumstance than environmental consciousness. Similarly, SUVs are the fastest growing auto category in the Mainland, showing that consumers are not taking re-sponsibility even though they are seeing the effects of a poor environment around

them. Consumer education still leaves room for significant growth, offering oppor-tunities for Danish businesses and green technologies.


With China’s worsening environment, many initiatives and innovations aim to im-

prove the soil, air or water situation. Increasing emphasis and subsidies for renew-able energies, has helped drive China to become the biggest producer of solar and

wind energy, while simultaneously shutting down coal mines, which is slowly re-ducing emissions and creating a more sustainable network. The economic slow-

down has contributed to lowering outputs for high polluting segments such as manufacturing, construction and electricity generation, causing an overall im-provement in air quality.

5.2.1 Electric Vehicles

While cities are banning street BBQs in an attempt to improve air quality, local

Electrical vehicles (EV) companies and imports are tackling problems with bigger impacts: Tesla, for example, is providing charging stations for electronic cars, in

hope of decreasing the number of fuel-powered vehicles on China’s streets. Coop-erating with the Chinese Government, all charging stations are bound to meet na-

tional standards to make them available for other car brands in order to increase the network and mobility for electronic car owners. This is an important considera-

tion for Chinese drivers when choosing a car and is likely to fuel growth in the segment.

While the amount of electric cars on the China market only accounted for 0.25% of 20 million vehicles sold in 2014, the Chinese Government aims to increase the total

number to 5 million by 2020. The industry is not without its challenges though; subsidies encouraging EV purchases have been fraught with fake sales by compa-

nies claiming subsidies on fictitious sales for vehicles.51

51 With electric cars being sold to producers’ sub-businesses, revenue is generated through receiving fundings from local and regional governments which account for up to ¥55,000 for cars and ¥300,000 for busses. China’s central government launched a fraud investigation early-2016 as only 63% of electric vehicles sold were registered for plates in the previous year.


It should also be kept in mind that with two thirds of electricity generated through coal in China52, EVs aren’t always environmentally friendly. Some standards have

not been nationalised such as plugs for EV buses which can vary by city.

5.2.2 Property Sustainability

Until recent years, environmental sustainability was perceived as a feature that was nice to have, but not necessary in construction. This perception has now shift-ed to become a major point of difference for building owners that want to stand

out from competitors. Solar panels and air quality monitors are the most popular features for landlords that aim to make their property more energy efficient. Green

certified buildings and offices now contribute to 12% of PM2.5 reductions in China’s cities with installed fresh-air systems accounting for an additional 16% according

to a JLL white paper53.

This is of high interest for companies in China as JLL’s research found that good air quality correlates with an 100% enhancement in productivity versus average air

quality. Losses in terms of labour costs are intended to drive innovation in the property segment. Many offices have additionally introduced recycling systems for

paper, plastics and used electric appliances in order to increase their efficiency in using resources.

5.3 Government Investment in Environmental Protection

The Government is increasingly acknowledging China’s pollution problem such as issuing Red Alerts in Beijing when air pollution gets too high. Part of this acknowl-

edgement is investing in R&D, such as green development being a key point in the 13th Five-Year Plan, which will see ¥6-10 trillion invested in environmental initia-

tives with low-carbon industry systems being set up and a green development fund established. Environmental protection enterprises are incentivised with a low tax

rate of 15% i. Companies with stationary pollution sources will additionally be inte-grated into an emission permit system as a further directive for reduced emissions.

Focussing on the development of green technology, the government investment for this sector will account for a total of ¥1,720 billion between 2015-2020. Establish-

ing monitoring systems for groundwater and real-time environmental observation nationwide, is likely to help by increasing efficiencies and determining areas that

are most gravely affected by pollution and need support in improving their situa-tion. An improved forest protection plan bans commercial deforestation, protects

grassland and intends to grow farmland and forest areas.

Beijing’s vast investment shows the shift of focus and new emphasis on developing a green China. Investment records prior to this introduction are not available. It is

expected that future government investment will allocate additional funds to meet the goal of peak pollution by 2030 and an environment-conscious society, but regulations for subsidies will become stricter as well.

52 Reuters, 2015 http://www.reuters.com/article/china-coal-idUSL3N0WL32720150326 53 JLL White Paper “Every Breath We Take – Transforming the Health of China’s Office Space”, 2015


5.4 Companies and Green Initiatives

With increasing awareness of environmental issues in China, businesses are be-

coming more involved in tackling the problem with different initiatives. Establishing branded and endorsed projects contributes to raise consciousness about worsening

impacts among China’s population and the need for action. However, since there are limited perceived financial incentives by private companies, and programs against pollution heavily rely on government funding.54

5.4.1 Alibaba’s Green engagement

In order to support Chinese scientists and environmentalists, Alibaba and the Na-

tional Geographic Society launched an air and water conservation fund in 2012. Supporting projects that are cutting-edge of research, technology and conserva-

tion, funding will range from ¥132,000 to ¥330,000, including risky or unproven approaches. This can contain scientific research, community conservation pro-

grams, technological innovations and communication initiatives that directly bear on novel solutions in air and water conservation. Alibaba is dedicating 0.3% of its

annual total revenue to environmental causes contributing to the combat against China’s environmental struggles.

Further incentives include a water mapping project that aims to determine the quality of water sources across China. The project empowers Chinese individuals to

measure water standards with a toolkit, and upload the results with a smartphone app, incorporating the information in a nationwide database. The project aims to

give more detailed insights into China’s water situation and educate the public. Tool kits that are easy to implement were issued before Spring Festival 2014 for

the first time to leveraging on the masses of Chinese returning to their home towns.

Alibaba is also supporting entrepreneurs in China and abroad that are involved in

green solutions such as a Philippine-inventor who developed a lamp that runs with seawater. Alibaba’s founder Jack Ma is a leading advocate for corporate social re-sponsibility and improving China's environment and is involved in NGO initiatives

such as being a member of the Conservancy's Board of Directors.

5.4.2 Green bonds

In order to help China’s transition to a green economy, capital of ¥2 trillion per

year to finance climate solutions is needed according to the Green Finance Com-mittee. 85% of this investment is hoped to be sourced in the private sector (do-

mestically and abroad), much of which could come from bonds. Rules on issuing ‘green bonds’ were published by the People’s Bank of China and the Green Finance

Committee of China Society of Finance and Banking in January 2016, the first country to do so.

The market opportunities in the area are vast as multiple trials show: Xinjiang Goldwind issued a ¥2 billion green bond that received orders of ¥9.2 billion while

Agricultural Bank of China issued the first Renminbi and US Dollar denominated

54 Reuters, December 2014 http://www.reuters.com/article/us-china-environment-idUSKCN0JH04S20141203


green bonds, contributing a total of ¥6.5 billion to the Chinese green bond market.

As a result, the Industrial Bank of China launched the first Chinese green asset-backed securitisation early this year that was valued around ¥2.6 billion and 2.5

times oversubscribed. Due to recent changes that allowed entry into the stock market, institutional investors such as pension funds, insurance companies and non-bank institutional investors are increasingly becoming important for financing

the private sector. With these companies being active players in the traditional bond market, their role as domestic green bond buyers is expected to grow.

5.4.3 Studio Rosegaard

Based on a concept from Dutch Delft University researcher Bob Ursem, Studio

Rosegaard is developing a ’pollution vacuum cleaner’ that is designed to collect nano-particles from the air and using electrostatic protons. Prototypes showcased a

99% reduction of air pollution.

The first wind-energy powered tower is currently being tested in Rotterdam before being moved to Beijing in summer 2016. The 30,000 cubic metres of particles col-

lected per hour will be transformed into high-end jewellery that can be purchased to further fund the development of the project.


Green initiatives in China are often funded by the government or follow Beijing’s

directives. Funds usually support projects, but don’t specify the amount of research conducted before the execution. Projects typically operate under one big brand name, and research partners are often not specified. The following cases aim to

give an overview of the types of green projects that offer many opportunities for cooperations with Danish technologies and innovations.

5.5.1 IBM Green Horizon

While many companies are engaged in boosting China’s environmental research

sector, much of it is conducted privately under the umbrella of the company’s name. For example, IBM’s Green Horizon project is a 10-year initiative that was

launched in 2014 to support sustainable urbanisation and help transform the na-tional energy system in China.

Leveraging on IBM’s network, the project involves 12 global research facilities cov-ering three segments: Air Quality Management, Renewable Energy Integration and

Industrial Energy Efficiency. Integrating IBM’s technologies and new solutions, Chi-na Business News awarded the project with the ‘Green Technology Innovation Ex-

ellent Practice” in November 2014.

5.5.2 SEE Foundation

Founded in 2008, the SEE Foundation aims to establish social responsibility among local entrepreneurs with the objective to protect the ecological environment. Ini-

tially being a cooperation of 100 Chinese entrepreneurs to prevent desertification in the Alxa desert area, more SME’s and start-ups are joining the NGO, donating

¥100,000 per year. Working with multiple enterprises, entrepreneurs, Greenpeace, the China Natural


Conservancy and government departments, the SEE foundation also supports pro-jects that aim to protect water resources, produce clean energy and prevent of air

pollution. Monitoring the effects of efforts, candidates that were granted funding had to provide evidence that their initiatives follow certain standards and improve

the living environment.

5.5.3 Saintyear

Saintyear Holdings Group is a large scale textile printing and dyeing enterprise that

supplies to multiple domestic and international brands. Due to several pollution violation records, brands like Uniqlo, GAP and H&M demanded a wastewater treat-

ment plant to reduce discharges.

As a result, Saintyear connected with environmental protection organisations to determine changes in their production chain. In cooperation with the Institute of

Public and Environmental Affairs and the local NGO Lǜsè (Green) Jiangnang a sys-

tem for a centralised water intake and drainage management was developed and implemented. These optimisations and additional renovations led to a reduction of

the average annual discharge concentration of 9.5% between 2014 and 2015. It is expected that more suppliers will follow due to continued pressure of brands to re-

duce discharges.

5.5.4 Applied Research

With lean manufacturing becoming increasingly popular among academic research-ers who are engaged in improving manufacturing performance, multiple universi-

ties have shifted their focus from theories and schemes to applied research that can be implemented with businesses. Concentrating on certain companies and sec-tors such as power, coal, oil and gas, findings feed directly into improving company

structures and procedures to efficiently use available resources.

In order to reduce waste, universities like Peking University, Shanghai University of Finance and Economics as well as Renmin University are assisting companies to

optimise their processes. This also includes lean management training for raising awareness among companies’ staff.




University of Chinese

Academy of Sciences

Sinoclean environmental

technology group

Development of air evo-

lution systems for houses and apartments

Beijing Normal

University Scimee Ltd

R&D and application of magnetic separation wa-

ter purification technolo-gy

Tsinghua University,

Beijing Toyota

Technology for emission reduction

Harbin Institute of

Technology

China energy conserva-

tion and environmental protection group

Development of energy

saving and environmen-tal protection building material

5.6 Challenges

With China’s green development being a top priority on Beijing’s agenda, business-es in the Mainland are bound to adopt greener production practices. Unfortunately

– similar to the fraud case described in chapter 5.3 – production methods are often ’greenwashed’ meaning reports and marketing measures are presenting companies

as more sustainable than they are in reality.

One of the largest oil companies globally, Petro China is representative of a num-ber of companies that was recently fined and shamed for making false statements

about their plants and oil production. Presenting themselves as a top sustainable energy provider and claiming to operate with low carbon emissions and energy

saving measures, several accidents and crude oil leakages in Petro China’s produc-tion plants were covered up. The government reacted with a fine of ¥200,000, but there is little evidence on how Petro China followed up to enforce changes in their

production and processing.

Uncovering similar cases, the Ministry of Environmental Protection ordered 207 businesses to cease operations in 2015. Large-scale companies are often involved

such as Ronghua Industry & Trade, which was shut down and fined ¥3 million for funnelling 83,000 tons of untreated waste water into desert areas of Gansu prov-

ince. Other cases of companies accused of greenwashing include COFCO Coca-Cola, laminate manufacturer Kingboard Chemical Holdings, the national electricity

supplier China Guodian Corporation and smartphone brand Xiaomi. The resulting trust and reputation damage could mean these companies bear op-

portunities for Danish technologies and businesses to target. Companies accused of greenwashing are likely to be receptive for innovations that will help raise their im-

age and establish them as a leader in environmental efforts. These businesses might be some of the lowest hanging fruit for Danish companies involved in green

initiatives.


Striving for Know-6.ledge Excellence

China is aiming to become one of the most innovative countries globally. Businesses are in the need of creative minds in order to stay competitive, but the education sector is responding slowly, leading to students enrolling in extracurricular programs. Multiple initiatives and coopera-tion between political and academic institutions as well as companies suggest that the change to a more innovative system is underway. Businesses like Baidu and Tencent and also officials like President Xi Jinping are endorsing education incentives. Incubation centres and increasing involvement from the private sector are driving creative education, advanced research and innovations.

6.1 Consumer Trends

With most families having one child in China, parents have just one chance for their offspring to succeed and provide for them in their retirement. Chinese parents

place great importance on education, and it is not unusual for them to spend more than 30% of their household income on education.

Education would be Chinese parents’ number one priority upon a 25% increase in discretionary spending according to Boston Consulting Group. The expected rise in

incomes between 2016-2019 will drive spending on education. Education-related services that complement existing schooling and enhance poorly provided areas

such as creativity are on the rise, e.g. Lego classes in Beijing that are trending within the upper middle class.

Vocational training and learning languages (English) are the most popular pro-

grams for extracurricular studies, with 23% of Chinese consumers spending more than ¥500 for single lessons online. 95% of graduates from vocational colleges find

an employer right after graduation, making this system attractive to Chinese who seek practical experience during their education. ¥23.6 billion was spent on learn-ing languages in 2015, showing the rising emphasis on education for an interna-


tional environment.


6.2.1 New Learning Techniques

Under the pressure of the national university admission exam gaokao, most stu-

dents focus their learning strategies purely on content that is relevant for the ex-am. Multiple reforms have attempted to shift the focus from quantity to quality ed-ucation in order to replace learning for exams by learning for knowledge. A few

years ago, art and physical education were considered unessential, but creative disciplines are increasingly part of curriculum. Innovative concepts further encour-

age critical thinking and student engagement rather than teacher-centred learning with the credo that to every question there should be more than a single answer.

6.2.2 Smartphone Usage

Chinese’s preference for mobile devices such as smartphones and tablets will drive

adoption of scalable, tech-based educational tools. Education tools represent 10% of the app marketplace in China, with an estimated 100 million e-learning users in

China in 2014. Opportunities in online education are not confined to university stu-dents, with online applications available to pre-school and school-age students, as

well as specialised applications and programmes for test preparations and profes-sional development. Leading apps include Wanxue, XiaozhanJiaoyu and Genshuixue. With 89% of online Chinese accessing the internet via mobile devices,

the online education market is expected to grow around 20% each year to ¥204.6 billion by 2018.

6.2.3 Massive Open Online Courses

A major component of the trend towards online education are Massive Open Online

Courses (MOOC). MOOCs are part of the Chinese Government’s education agenda to reduce inequalities in access to education between urban and rural areas. Sub-

sidising online courses provided by China’s top universities, the Chinese Ministry of Education is aiming to build the ‘Open University of China’. MOOCs in China are

characterised by their diversity: from state-sponsored initiatives like a joint project with Peking University and Alibaba, to small unaccredited grassroots start-ups such as Wanmen University that is offering online courses for different education levels.

China’s vast extracurricular tutoring market today is worth ¥200 billion in total.

6.2.4 GDP Growth

China is transforming from a manufacturing hub that adapted existing technology and knowledge, to an innovation leader worldwide. In order to realise this transi-

tion and achieve the economy’s yearly growth goal of 5.5%-6.5%, innovations will have to contribute two to three percentage points to China’s annual GDP growth

over the next 10 years.55 Innovations are expected to contribute around 40% to the increase in total factor productivity in higher-level manufacturing and internet-

related services by 2025 as well as future break-throughs, equalling ¥7.9-13.2 tril-lion.

6.3 Investment in Education Innovations

With education being one of the main pillars for China’s future development, the 55 McKinsey “Gauging the Strength of Chinese Innovation”, 2015


Chinese Government and private sector are increasingly supporting education and innovative institutions. Opening a new university almost every week, it is predicted

that Chinese graduates aged 25-34 years old will increase by 300% until 2030, compared to a rise of only 30% in Europe and the U.S.

6.3.1 Government Investment

To provide high-quality and innovative learning, the government’s investment into the sector doubled between 2012 and 2014 to ¥6.55 billion (see chart below).


In addition to the overall education spending, the Chinese Government invests

¥1.2 trillion in research to drive innovations. According to McKinsey, new innova-tion opportunities are expected to contribute up to 24% to China’s GDP growth

which equals ¥6.6-14.5 trillion.

Beijing released ¥15 billion in 2015 in an attempt to improve the quality of voca-tional schools and colleges, as well as teacher training, with an additional ¥4 billion

being spent on the infrastructure of secondary vocational schools. 92% of second-ary vocational school students enjoy free tuition, with low-income families receiv-ing yearly allowances from ¥2,000-5,000. In addition, 165 trial projects were

launched to connect schools with businesses and enhance the practical implemen-tation of content learned.

6.3.2 Investment from the Private Sector

SadThe increasing focus of education for companies is reflected in more businesses

investing in innovative learning and research programmes that aim to enhance learning experiences and help develop skills beyond technical knowledge. With

many students lacking the soft-skills that are an important feature for employers, programs that are developed to fill this gap find increasing attention. 32% of pri-

vate investment globally went to 20 learning technology companies in China in the first half of 2015, totalling ¥5.3 billion.56

56 Ambient Insight (U.S.-based market research firm) “2015 International Learning Technology Investment Patterns”, 2016

0

1

2

3

4

5

6

7

2011 2012 2013 2014

Government Investment in Education (¥ billion)


6.4 Companies and Initiatives

6.4.1 Baidu

One of China’s three internet giants, Baidu, is investing in several extracurricular education companies that offer innovative programs and support creative thinking.

With investment amounts ranging between ¥66-658 million, beneficiaries include test-prep provider Wanxue Education as well as online education sites Chuanke,

SmartStudy and SmartPigai.

Aiming to facilitate learning processes, Baidu also launched the Homework Helper App in 2014 – a tool that assist students completing difficult assignments within a

community. Incentivising correct answers through e-coins that can be collected and redeemed for anything from iPhones to laptops, the app achieves a success rate of 80%. Proving very popular, Baidu’s Homework Helper was downloaded 5

million times in the first months after its launch.

6.4.2 Yidan Prize by Tencent’s Founder

Charles Chen Yidan, a philanthropist and one of the co-founders of Chinese inter-net giant Tencent launched the Yidan Prize in May 2016. The prize aims to recog-

nise and support innovators in the education system with an independent fund of ¥2.1 billion, being the largest monetary education award globally.

Honouring education research as well as education development, winners of their

category will receive a project fund of ¥12.7 million in addition to a prize of the same amount. In cooperation with the Economist Intelligence Unit, trends in edu-cation worldwide until 2030 are identified as basis for the judgement of Chinese

education projects.

Being an advocate for innovative learning solutions, Chen invested in the Wuhan College at the Zhongnan University of Economics and Law in 2009 and donated an

additional ¥2 billion for a new campus and to transform the college into a private non-profit university.

6.4.3 China Innovation Works

Established in 2009, China Innovation Works is funding entrepreneurs and working

closely with new businesses to realise the success of innovative concepts. Their aim is to establish an online network for exchanging ideas and experiences.

To support Chinese entrepreneurs, the International Finance Corporation (IFC) in-vested ¥98.7 million into China Innovation Works. Acknowledging innovation and

entrepreneurship as China’s future growth engines, IFC’s development priorities include technologies in innovation fields such as education, the internet and fi-

nance.



Innovations and creative minds are high on the agenda of many universities and

institutes as well as businesses who seek to hire young and independent thinkers. Multiple initiatives are intensifying the international exchange and dialogue be-

tween education facilities aiming to create sustainable partnerships.

6.5.1 EU-China Co-Funding

The EU-China Co-Funding (CFM) aims to enable a stronger and more balanced col-

laboration between Chinese and European universities, research institutes and en-terprises under Horizon 2020.57 Designed to support China-based research and in-

novation organisations that participate in Horizon 2020 project, thematic areas in-clude food, agriculture, biotechnology, information and communication technology,

space, aviation, energy, health, transportation, water resources, energy conserva-tion, advanced manufacturing, new materials, sustainable urbanisation, and ex-

changes of young scientists.

The 2016 budget of ¥200 million enables beneficiaries in China to connect with prominent research teams and scientific networks with access to world-leading

knowledge and research data. Selected Chinese researchers are integrated in re-search teams that are supported by the European Research Council, enhancing ex-cellence-based cooperations and promoting the mobility of researchers between

the EU and China.

6.5.2 Imperial College London

Cooperations between the Imperial College London and Chinese institutions date back to 2005. Within a decade, the amount research papers co-authored by Impe-

rial and Chinese academics rose from 3% to 22%, manifesting an increasing em-phasis on cooperations with Chinese researchers. Endorsed by Xi Jinping who visit-

ed the college in October 2015, Beijing-based financial services provider China UCF Group invested ¥28.6 million into the Data Science Institute and Hamlyn Centre for

Medical Robotics. Collaborating with businesses such as Huawei and China Southern Railway, coop-

erations are perceived as beneficial not only for China, but also for the UK. Scien-tific research partners include Tsinghua University, Zhejiang University, Shanghai

Jiaotong, Wuhan and Peking Universities, and the Chinese Academy of Science. There are also plans to create a centre for transnational entrepreneurship together

with Zhejiang University that aims to enhance communication and exchange be-tween UK and Chinese innovators.

6.5.3 University Incubation Centres

China’s government is driving incubation centres to promote innovations and coop-

erations between universities and businesses. The centres have been set up in multiple universities across China. Donghua University in Shanghai combines this centre with an Entrepreneurship & Innovation programme which encourages stu-

57 Horizon 2020 is a Research and Innovation programme initiated by the European Un-ion that funds innovation and research, emphasizing on excellent science, industrial leadership and tackling societal challenges in different thematic areas. The programme aims to create a genuine single market for knowledge, research and innovation in order to drive economic growth.


dents to develop creative and innovative business concepts. Being the 9th most international university nationwide, it offers opportunities for informational and in-

tellectual exchange.

The Donghua Incubation Centre is mainly endorsed by SME’s but also several For-tune-500 companies like German automotive and industry provider Schaeffler. The centre helps realising multiple research and innovation projects. A similar program

at Shanghai Business School sees Chinese students cooperate with Rotterdam Business School.

Encouraging open thinking, the program matches students with partners at anoth-

er university and the task is to come up with a business idea and to establish a company in China. The aim is to build international exchange and encourage crea-

tive learning and innovative research.

6.5.4 Applied Research

Innovations are becoming one of the main drivers for China’s growth and busi-nesses increasingly acknowledge the need for creative and forward-thinking staff.

Large companies with up to 200,000 employees are becoming aware of entrepre-neurship being an important driver with rigid company procedures blocking initia-tives.

Workshops linking academic consultants with staff from large companies are grow-

ing as they combine academic innovations and concepts with practical ideas and implementations. While being part of a large team often leads to low effectiveness

and efficiency, innovation workshops are proving to drive creative ideas for new concepts and enhance the motivation of employees.

6.6 Acquisitions and Foreign R&D

China has been transforming from manufacture-based to an innovation driven

economy, and trends suggest that a third step will lead to Chinese innovations driving the market. This is reflected by Chinese companies buying foreign compa-nies such as the acquisition of Motorola Mobility by Lenovo, Zhejiang Geely buying

Swedish carmaker Volvo and Dongfend Motors (ranking 31st among automobile firms by R&D expenditure globally) bidding for Peugeot-Citroën.

In order to realise the shift to a service-based economy, Chinese companies are

aware of the need to enhance their knowledge in this sector. This is reflected in China dedicating two thirds of offshore investments to services to gain expertise by

acquiring and developing foreign technologies, brands and marketing concepts. Furthermore, Chinese corporate R&D centres are created in the U.S. and Europe to

fill the knowledge gap for understanding and operating in an increasingly sophisti-cated market.


6.7 Challenges

While recent developments in the industry are promising, there are some hurdles

that have to be overcome and even might bear opportunities for Danish businesses if addressed in the right way.

Although young talents are becoming increasingly interested in alternative learning and research methods, the majority of China’s 2,300 universities follow a system

with exam-focused programs. Educators are often very traditional and perceive new technologies like online learning as a threat rather than a useful complimen-

tary tool.

As a result, Chinese graduates have a vast knowledge asset, but often lack soft-skills and lateral thinking – competences that are equally important for employers

in an innovative environment. Extracurricular courses increasingly emphasise these skills in their programs, but industry insiders believe that a real impact can only be

achieved through reforms and international relations. Current investments into educational and research innovations predominantly

come from private cooperation that are usually not officially specified. Universities see the need for intensified collaborations and funding, but are concerned about

compromising relations with the government as cooperation with businesses often lead universities to take a stake in potential successful outcomes.

About ICDK Analysis

ICDK analysis is written or managed by the Danish Ministry of Higher Education and Science’s Innovation Attachés. The Innova-tion Attachés are a part of Innovation Centre Denmark which is a partnership between Denmark’s Ministry of Foreign Affairs and the Ministry of Higher Education and Science. Together the two ministries manage six centres in Brazil, China, India, Korea, Ger-many and the USA. ICDK analysis is a concept where the atta-chés provide new knowledge and inspiration about opportunities or trends within a given topic with relevance for stakeholders within higher education, research and innovation. Find out more about Innovation Centre Denmark on www.icdk.um.dk, where you also can find all ICDK analysis.

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